With the US markets closed for the President’s day holiday, we could see volume a little subdued as we move through the European session. In terms of the calendar, we will see construction data out of the Eurozone, with the only other headline a speech from BoE governor Mark Carney at 6:45 this evening. Despite the lack of US traders at their desk, it could well be a further bearish dollar story as we look for a continuation of last week’s moves, and the weekend’s revelations around the Mueller inquiry.
Both the Russian’s and American’s have been trading comments over the indictment of 13 Russians alleged to have attempted to influence the US Presidential Election in 2016. Russian foreign minister Sergey Lavrov called the move “Blather” while the US’ McMaster claimed that the evidence was incontrovertible. Obviously, the President has had his say on the matter, and in true Trump style, he criticized McMaster and the FBI without even a mention of Russia in a series of tweets.
I would say we expect to see a continuation of the US dollar weakness story this week, especially with the FOMC meeting minutes due for release on Wednesday evening and the semiannual monetary policy report on Friday. The expectations of at least 4 rate hikes in 2018 have been touted and therefore priced into markets for a long time. So, a more hawkish tone at the meeting minutes does not mean we should see too much US dollar upside. The Fed probability still sits happily at the 100% mark for a rate hike in March with no signs that that will change, however the big story will come next week when new Fed Chair Jerome Powell testifies in front of Congress.
After the quiet start to the week we will get much busier on the calendar as the week goes on with plenty of UK, Eurozone and US data to focus on as well as the meeting minutes from the FOMC and ECB. Despite my bearish dollar stance, we have seen a degree of dollar upside first thing on Monday but have hit some midterm lows that are showing signs of support.
EURUSD will be in focus as both meeting minutes from the country’s central banks are due for release this week. The weak dollar landscape we have now doesn’t show many signs of going away as EURUSD continues to build a base at the lower level at 1.2384. Shorter term we look towards upside caps at 1.2435 while it evades the dollar bulls and looks to bounce off the downside trendline, while bouncing off the downside RSI support level, indicating some sustained upside.
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Ongoing rate curve repricing and risk asset reaction perfectly illustrate how worryingly reliant investors have become on easy money policies