Euro/dollar trades have been dominating our prop desk in the last 24 hours with a number of attempts to book quick opportunistic shorts falling flat, but a long position taken up on Monday has been closed at a healthy profit. A short S&P trade that had been open since February has also been closed at a loss.

Daily Round up

We have some key economic releases due in the next 24 hours including UK wages, Eurozone inflation and Australian unemployment, but it’s the Trump-inspired geopolitical risk that still seems to be dominating the agenda for now. The dollar is unwinding and the big question seems to be whether this will translate into an equity market collapse. S&P futures are suggesting the index will open 17 points lower this morning – any acceleration of that would have global repercussions.

Fundamental Analysis- Greenback still on the defence

Mounting concerns over Donald Trump in the wake of the latest Russian allegations is taking a marked toll on the US dollar. Against the Euro we’re out to levels that haven’t been sustained until before the US Presidential election and even cable – which was left reeling in the wake of yesterday’s inflation print – has staged a quick rally to retake the 1.2900 handle. Some lacklustre US economic data in terms of slower home construction is also said to be weighing, but the steady ascendency of gold prices also suggests it’s as much the geopolitical risk as it is the economic factors that’s driving sentiment now.

In the wake of yesterday’s UK inflation reading, the average wage data that’s due from London at 8.30am GMT will be under a degree of scrutiny. The expectation here is that pay rises will continue to lag inflation and that cuts the Bank of England some slack in needing to consider further policy tightening, but anything that comes in ahead of that average earnings including bonuses forecast of 2.4% for the year to March is likely to see this stance being reconsidered. It has been said that some MPC members won’t take much convincing to vote for a hike in interest rates, so the markets are likely to be quick to price in any such data driven risk.

We have Eurozone inflation due at 9am GMT and given the generally improving economic picture across the monetary union, this will be closely followed. However, reaction to even a slightly better than expected print could be rather muted, with the picture skewed by oil prices, the ECB’s ongoing commitment to QE and the fact we still have that key vote in Athens over Greece’s extension to austerity to secure the next tranche of bail out funds. If we do see a jump higher, there’s a good chance it could be difficult to sustain.

The Japanese GDP print for Q1 is due at 11.50pm GMT tonight and this forecast suggest that the ongoing efforts of the so-called Abenomics policies could soon start paying dividends. A year on year growth figure of 1.7% is being called and it seems that there’s every chance that an economic corner has been turned for the country. However, with the Yen having already benefitted from a bout of dollar weakness in recent days, just how much appetitive there will be to quickly drive USD/JPY lower still from here remains to be seen.

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.