In our report yesterday we mentioned that the US Dollar was struggling to rally due to the lack of a positive catalyst. Yet, how can North Korea’s leaders surprise visit to China impact the US dollar and equities? Take a look at today’s 29 March US Dollar Impact Analysis.
29 March, ADS Securities – North Korean leader Kim Jong Un decided to visit China in an unannounced trip that caught everyone by surprise but was welcomed by investors and market participants.
Kim Jong Un visits China: 29 March US Dollar Impact Analysis
Kim’s visit signals a significant development in the region’s geopolitical scene and downplays risks on a global scale especially ahead of the upcoming meetings between North and South Korea and the US.
The US Dollar rallied on the back of this positive development and global equities also responded in a positive manner to the news. The Dollar/Yen made it all the way to the 107 area as the easing of tensions in Asia further supports the risk-on sentiment that has helped the currency pair rally from the 104.50 lows.
We have voided our bias towards a move lower for the US/Japanese pair as the technical outlook supported a continuation of the recent decline but clearly the magnitude of the news trumped technicals.
A sustained break above the 106.50 level and a move over the 107 mark would cancel our short-term bearish bias for the pair and may point towards a broader reversal attempt in the short term – even though in the medium term the fundamentals still point lower.
German data expectations
During the day ahead investors will want to focus on the release of the German unemployment and inflation data and also on the PCE figures from the US. The German data is expected to print marginally higher this month and it may provide some support to the declining Euro that edged towards the 1.23 area.
Furthermore, the PCE inflation from the States is likely to indicate that price pressures eased in February and a lower printing may slow down greenback’s surge allowing the rest of the majors to catch their breath.
European Market Overview
The Euro and the Pound extended their losses as the Dollar enjoyed broad momentum across the board that weighed down on the European currencies. With no significant data or news from Europe, we attribute the decline partially to Dollar’s surge and also to profit-taking ahead of the end of Q1 magnified by the thin liquidity ahead of the holiday weekend.
The Euro had gained 4% year to date before yesterday’s decline and Sterling just over 5% during the same period so it makes sense for investors to bank their profits at this time and enjoy a quiet break after a successful quarter.
With the week almost over and Dollar expecting softer data, the Euro and Pound should remain above their key 1.23 and 1.4065 support levels for the day ahead. However, we need to be mindful of the thin liquidity conditions; short sellers may jump on the opportunity to put pressure on the 2 currencies that would expose them to further downside – 1.2250 is the next base of support for the Euro and 1.40 for the British Pound.
Equities rally higher on hopes for de-escalation
Equities rallied on the back of the positive news from China as Kim Jong Un’s visit signals further progress in resolving the tensions in the Korean peninsula.
President Trump welcomed the news and investors are hopeful that if North and South Korea and the US sit on the same table they might find a solution that would denuclearize the region or at least reduce the risk of military action.
The positive bias in equities is helping the trend of the Asian market to the upside and the European opening is also expected to reflect the bullish momentum. European and US futures are pointing higher and we should be in for a gainful end of the week for equities.
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This article was provided by analysts of ADS Securities.
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