The battered Dollar licked its wounds near a 15-month low against a basket of global currencies during early trading on Wednesday, as investors repositioned ahead of a multitude of key risk events this week.
It has certainly been a rough trading year for the Greenback, with sentiment turning increasingly bearish as political drama in Washington clouds the prospect of another US interest rate hike in the coming months. Waning confidence in Washington over Trump’s ability to move forward with tax reforms and the fiscal stimulus that markets have been heavily betting on have made the Greenback vulnerable to further losses. As August gets under way, the unsavoury combination of political risk and concerns over stubbornly low inflation in the US are likely to put more pressure on the Greenback -further weakening its position against other major currencies.
As the Dollar sulks near a 15-month low, investors may direct their attention towards the ADP Employment Report for July that is being released later today and which should offer further insight into the health of the US economy. A figure below the market consensus of 185k is likely to entice bears to attack the vulnerable Dollar further. From a technical standpoint, the Dollar Index is heavily bearish on the Daily charts. Repeated weakness below 93.00 should encourage a further deprecation towards the 92.00 support level.
Sterling marches to 11-month high
Sterling ventured to its highest level in 11 months against the Dollar on Tuesday, after the UK Manufacturing Purchasing Manager’s Index rose to 55.1 in July. With UK manufacturing growth rebounding from a seven-month low in July, some fears have receded over a deceleration in economic momentum and this was reflected in Sterling’s appreciation. Although Sterling has started the trading week on a firm footing, with Tuesday’s positive economic data keeping the currency buoyed, the key driver behind the GBPUSD’s resurgence remains Dollar weakness.
This is a big week for the British Pound, with volatility expected as investors brace for Thursday’s UK Services PMI report, as well as the BoE’s policy decision and the release of its latest quarterly inflation report. A vulnerable Dollar has elevated the GBPUSD to above 1.3200 and further upside is on the cards if bulls secure another daily close above the 1.3200 level.
Commodity Spotlight – Gold
July was a remarkable trading month for Gold, with bulls thrown a lifeline after the Federal Reserve’s cautious outlook on inflation punished the US Dollar and weighed heavily on the prospects for higher US rates. Although the yellow metal edged lower during Wednesday’s trading session as the Dollar attempted to stabilize, buyers still remain in control on the daily charts above $1260.
From a technical standpoint, the yellow metal remains bullish on the daily charts and a decisive breakout above $1270 should encourage a further appreciation towards $1280.