US Open Preview – Dollar enjoys gains as attention shifts to geopolitics and monetary policy


C. Parthenidou & M. Deltas, XM Investment Research Desk

Here are the latest developments in global markets:

  • FOREX: The US dollar managed to cross slightly above the 110.00 key level against the Japanese yen on Monday to reach an intraday high of 110.06 ahead of a historic summit between the US President and the North Korean leader on Tuesday and the conclusion of the two-day FOMC policy meeting on Wednesday. The US dollar index which measures the greenback’s performance against a basket of six major currencies moved slightly higher by 0.07% today. Euro/dollar edged up by 0.21%, posting gains after Italy’s new finance minister pledged to keep the euro currency.  Pound/dollar slid by 0.34% following the release of downbeat manufacturing and industrial production readings. Manufacturing production decreased by 1.4% m/m from a 0.1% fall in the previous month, posting the fastest drop since March 2013, while industrial production declined by 0.8% versus a contraction of 0.1% seen previously. Euro/pound jumped to 0.8813 (+0.42%). Turning to antipodean currencies, aussie/dollar climbed marginally by 0.09% to 0.7607 as Australian markets were shut for a holiday (Queen’s Birthday), while kiwi/dollar stood lower at 0.7025 (-0.10%). Dollar/loonie moved higher by 0.47% to 1.2983 as the G7 meeting concluded with renewed trade threats.
  • STOCKS: European equities were a sea of green on Monday although the G7 summit failed to break the trade deadlock over the weekend. The pan-European STOXX 600 and the blue-chip Euro STOXX 50 were up by 0.51% and 0.48% respectively at 1100 GMT. The German DAX 30 edged up by 0.46%, the French CAC 40 climbed by 0.23%, UK’s FTSE 100 moved up by 0.91% and the Spanish IBEX 35  gained 0.77%. The Italian FTSE MIB was the best performer, surging by 2.17% after Italy’s new finance minister showed commitment to remain in the single currency. Futures tracking US stock indices were all in the green after two consecutive bullish days, pointing to a positive open.
  • COMMODITIES: Oil prices extended losses after Friday’s Baker Hughes readings showed a rise in the number of active US oil drillings, while news announcing a pick up in Russian production on Monday pressured prices even further. The market is also pricing in that OPEC would publicize an output hike at its policy meeting on June 22-23 amid rising US production. West Texas Intermediate (WTI) crude and Brent were developing lower at $64.92 per barrel (-1.25%) and $75.64 per barrel (-1.07%) respectively. In precious metals, gold was in the negative ground, trading lower at $1,295.20 per ounce (- 0.21%).

Day ahead: Focus switches to Geopolitics and monetary policy

Monday’s economic calendar will be relatively quiet in terms of major data releases in the remainder of the day, giving some time to investors to prepare their positions ahead of high-spot events later this week.

Early in the Asian session, traders will see the release of electronic card retail sales out of New Zealand at 2245 GMT, while at 2350 GMT Japan will issue PPI readings.

However, since the above data have a small capacity to spread volatility to the markets, the focus will turn to Singapore where the US President, Donald Trump, will be holding a historic summit with the North Korean leader, Kim Jong Un at 1700 GMT, a proposal made unexpectedly by the latter but initially cancelled by Trump. The two leaders, who will finally meet in person after exchanging war of words in 2017, will push efforts to find a common ground on North Korea’s future nuclear program after Kim showed the willingness to give up its nuclear weapons. Should the discussion prove fruitful, US trade restrictions could turn softer against the isolated peninsula, while the Korean War could also take a formal shape. However, if the meeting fails to deliver progress, the US could take a stricter stance against North Korea, bringing a fresh wave of uncertainty to the markets. Note that this would be the first meeting between a sitting US President and a North Korean leader.

Meanwhile in the US, the Federal Open Market Committee is scheduled to start its two-day policy meeting on Tuesday, with analysts widely expecting policymakers to hike interest rates for the second time this year and remain hawkish on the face of the US improving economic performance. The European Central Bank and the Bank of Japan will also decide on interest rates this week, on Thursday and Friday respectively, however, no rate rises are anticipated to be approved in these cases. Yet, the ECB policy meeting could attract a greater attention as the central bank could give direction on its QE program that expires in December. Particularly analysts wait to see whether policymakers will end or expand their bond-buying program after its expiration day.

Trade headlines would remain under the spotlight as the G7 meeting in Quebec Canada during the weekend was unable to unite the US with its closest allies on the trade front, with investors now looking for further clues to see whether rising trade tensions could unleash a global trade war.