Macro economics

Analytics on 30/04/2019. Dollar bleeding ahead of FOMC meeting, oil bulls back in the game

Weaker-than-expected Chinese data reignited concerns over the global economy. The Caixin/Markit factory PMI, fell to 50.2 in April — lower than the March reading of 50.8, and missing the 51 projected. As a result, European stocks were slightly lower Tuesday despite the Euro zone GDP came in higher than expected. The preliminary estimate of first-quarter GDP rose 0.4%, up from 0.2% in the final three months of 2018. Meanwhile, trade negotiations between the US and China are set to resume in Beijing today, which makes investors cautious as well.

Against this backdrop, Britain’s FTSE 100 sheds 0.18% to 7,427, France’s CAC 40 is down 0.29 percent to 5,565, while German DAX 30 declined by 0.03 per cent to 12,324. US stock index futures are looking mixed ahead of the official opening, as investors are preparing for another series corporate earnings and shift focus to the upcoming FOMC meeting.

The dollar accelerated the decline across the board today, as stronger-than-expected euro area data inspired euro bulls. EURUSD jumped above 1.12 for the first time in a week after a surprisingly robust Q1 GDP. Moreover, the unemployment rate in the region declined to 7.7% from 7.8%. The unemployment in Italy also came in better than anticipated. Besides, the dollar feels the increasing selling pressure ahead of FOMC meeting as traders expect the central bank will confirm its commitment to the dovish tone. In the short-term, EURUSD needs to confirm a break above the 1.12 psychological resistance in order to proceed with the recovery.

USDJPY dipped below the 200-DMA after yesterday’s mild recovery. The pair is under pressure in line with the general souring sentiment around the greenback. Besides, a slight risk aversion adds to the Japanese yen appeal at the moment. However, upside risks for the pair could emerge if the US and China report further progress in their trade talks in the days to come. So far, the short term outlook for the dollar remains bearish and could be altered if the Fed surprises to the upside on Wednesday. Technically, the prices need to hold above the 111.00 support to avoid a more aggressive sell-off.

Bret crude accelerated its corrective rebound from Friday’s slide in the wake of Trump’s statement on OPEC output increase. Saudi Arabia oil minister signaled today that OPEC+ deal could be extended to the end of the year, which gave some relief to investors. On the other hand, the ongoing global slowdown fears may cap the upside potential in the oil market as Chinese data continue to point the economy still needs additional stimulus. In general, the fundamental picture remains bullish as long as concerns over Iran persist. There is also a wild card for the market in the context of the OPEC+ deal – the big question if Russia agrees to prolong supply cuts, and this may cap the bulls’ efforts in the coming weeks ahead of the group meeting in Vienna.

Nathan Lambert, Head of Global FX Analytical Department

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