DY: Commodity Bloc Expected to Underperform As Gold, Oil and Equities Falter
It is truly impressive that the Euro remains so well bid despite the latest bout of negative developments on the Eurozone peripherals, and market participants continue to price in the likelihood for a rate hike at next week’s ECB meeting. ECB president Trichet has said that inflation is beginning to show signs of being “durable” and this has been taken as a further proof that the central bank will indeed act when it meets next week.
Meanwhile, commentary from Fed officials has been rather upbeat and on the hawkish side, but this is not having any favorable impact on the buck as of yet. Clearly, this upcoming NFP and unemployment data due out on Friday will be important, and any sign of continued improvement in those numbers could help to spark some USD bullish momentum.
Elsewhere, while the Swiss Franc and Yen have reigned in volatility after breaking to record highs against the US Dollar, things have been more active on the commodity bloc, with these currencies outperforming in recent trade. But we have a hard time seeing how these currencies can continue to outperform going forward, especially with gold, oil and US equities pulling back. In fact, after putting in a fresh post float record high by 1.0315 on Monday, Aud/Usd has pulled back quite a bit with a bearish gravestone doji like formation to suggest that we could be in the process of carving out a top.
Finally, the Pound remains relatively well offered as market participants scale bank interest rate expectations following a slew of disappointing economic data and less than hawkish central bank commentary. Any fears over the threat of inflation have been mitigated by the Bank of England, and this leaves markets still very much focused on the recovery in the local economy. UK GDP data is due out in a bit and any additional weakness in this data series could put more pressure on the Pound.
Looking ahead, the 8:30GMT UK data takes center stage in European trade, while the ongoing crisis in the Eurozone should also be a source of volatility for the session. US equity futures are tracking slightly higher, while commodities are moving in the opposite direction.
