After a resurgent move higher for the dollar in the wake of the better than expected growth figures, can the momentum be sustained with a raft of key data this week? We consider the outlook for forex, equities and commodities markets for the coming days.
For weeks, markets have been on tenterhooks, waiting for data (delayed by the Government shutdown) to fill in the blanks on whether the US economy was outperforming in the midst a slowing global economy. Fed chair Powell continues to espouse “patience” but the Fed is definitely data dependent. Last Thursday’s positive surprise on Advance GDP has impacted with higher Treasury yields and, by association, a stronger US dollar. A corner has been turned, but for now it looks to simply be part of the big multi-month consolidation (which has been expected to turn into a dollar correction through 2019). Looking at the trade weighted Dollar Index, there is a trading range of the past five months, broadly between 95.0/97.7 and a near term buy signal has been posted, around 96.0, in the middle of the range with a bullish key one day reversal. This now opens for a near term dollar strength and another rally towards the range highs. This comes as the US 10 year Treasury yield has pulled 10bps higher in a few days (including a bullish key one day reversal) to its highest level for a month. However, a key pivot on the 10 year yield at 2.80% is likely to restrict a dollar rally again. There will be more tier one US data this week, with ISM Non-Manufacturing and Non-farm Payrolls. If the US economy continue outperform, then rising yields could drive this dollar rebound in the coming days. With dollar strength renewed this could mean $1.1300 camping back below $1.1300 again, whilst a decisive change in outlook on gold has come with a $1300/$1310 pivot now resistance.