28 May, ADS Securities – An improvement in risk sentiment and a decline for the Dollar spur the European majors and commodity dollars higher at the start of the week. After canceling the long-awaited meeting with North Korea’s Kim, President Trump performed a U-turn to suggest that the meeting might still happen after Korea’s forthcoming response last week.
Risk off demand eased further on the back of this news and traders even regarded the Italian President’s refusal to accept a Euro-skeptic Finance Minister as a positive – even though it could mean that new elections will have to be called.
28 May US Dollar Trading Outlook
The Dollar is losing ground across the board as investors are rediscovering their risk appetite encouraged by the US-North Korea developments and a further correction in US yields that are now trading just above the 2.9% mark. The only exception to Dollar’s retreat is seen versus the Yen and the Canadian Dollar; the Japanese currency is seeing reduced inflows as safe haven demand eases while the Loonie is extending its decline as Oil prices dropped further to hit $66 this morning.
The UK and US markets are closed today in light of the Spring and Memorial Day holidays respectively so trading volumes during the first 24 hours of the week will be subdued. Nevertheless, these might be the perfect conditions for Dollar’s retreat to pick up more pace ahead of tomorrow’s Consumer Confidence report that is expected to print softer this month.
Oil prices decline
At the same time, Oil prices’ decline casts doubts on whether US inflation will trend higher; early expectations for Oil at $80 per barrel suggested an upwards pressure on US prices which would require the Fed to respond.
With Oil now trending lower and rumors for a reduction in production cuts suggesting a top for the black Gold, higher energy prices which would translate into higher inflation thus more rate hikes from the Fed seem less likely.
As such, it will be interesting to see whether the Dollar rally is finally due for a meaningful correction. Clearly there is still a lot of ground to be lost before we declare the Dollar bull run over but traders need to be aware of the above catalysts which if combined with more bearish US data might force the greenback to look for lower ground.
Equities are buoyed by the improvement in risk appetite and the lower Treasury yields and investors are looking eager for bargains at the start of the week. The UK and US markets are closed today but the rest of the global bourses are expected to open higher.
Asian stocks are already trending higher and today we might see an attempt to re-establish a fresh upwards trend on the back of the improved conditions. Albeit the situation in Italy is still a risk and a prolonged period of uncertainty in Europe’s 3rd largest economy could take a toll on European equities’ outlook so caution is advised.
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