MARKETS: Dollar dominance punishes Euro, Pound and JPY

CURRENCY MARKETS
The Dollar bulls continue to enjoy momentum and drive the Greenback higher following Janet Yellen reigniting buying interest after she recently repeated the Federal Reserve’s commitment to raising US interest rates at some point this year. There were previously concerns that with fragilities in the US being exposed, that the Fed would delay raising rates until 2016. US economic data was mixed on Tuesday with another weak durable goods release increasing the likelihood that future GDP readings will continue drifting lower. While it is positive that business investment is on the rise, it is a concern that the expenditure in the US economy is through investment and not traditional consumer spending.
The Euro is continuing to decline throughout the currency markets with the combination of a possible Greece default in just over a week and anti-austerity parties being declared victorious in several elections across Spain which has alerted investors, because not only is there a general election taking place at the end of the year, but because it has increased pressure on the negotiations between Greece and its creditors. The possibility for an anti-austerity government to form in Spain is increasing, and if a deal between Athens and its creditors is secured this will mean that Greece will receive at least some flexibility with regards to its bailout conditions, and this may act as encouragement if a similar situation arises with Spain at a later date.
The blueprint for anti-austerity parties to become prominent figures in European governments is emerging, with this increasing the possibility of political risks throughout Europe. Investor sentiment has already been weighed down by the continual negotiations to avoid a Greece default, with attention soon to turn to UK Prime Minister David Cameron as he begins his own negotiations with EU leaders and a general election in Spain at the end of the year. These are all risks to investor sentiment and with the EU economic landscape remaining weak, don’t rule out the Eurodollar reaching parity by the end of the current year.
The GBPUSD has now dropped to 1.5353, largely a technical move following the pair closing below 1.55 a few days ago. The pair is still vulnerable to further losses, especially with the USD riding high, and a reduced outflow of UK economic data meaning that the Dollar is providing direction for the Pound. Preliminary UK GDP figures are released on Thursday but unless this is an outstanding figure and offsets the Bank of England’s (BoE) constant concerns over weak inflation, it is unlikely to awake the bulls because a UK interest rate rise is still a year away, at the earliest. There is some optimism that the BoE could hike rates in the first quarter of 2016 but this is extremely unlikely as long as the BoE’s inflation concerns are so stubbornly strong.
Another technical move has been the conclusion of a bullish wedge pattern on the USDJPY, which has resulted in the pair touching a seven-year high at 123.309. Despite the recent Japanese GDP coming in higher than expected and further indications being noticed that the trade deficit is beginning to shrink, the markets continue to question the pace of the Japanese economic recovery with this resulting in bearish pressure on the JPY. Knowing that the Bank of Japan (BoJ) is highly unlikely to increase stimulus measures and with technical indicators now suggesting the USDJPY is heavily overbought, traders may begin to close positions over the next few sessions.

COMMODITIES
Gold has suffered as a result of Dollar strength and dropped to a two-week low at $1185.51. Other than Mortgage Applications, US economic data is low in volume on Wednesday and this will likely release some of the recent pressure on Gold selling. This means that Gold will try to move up the charts, before being exposed to further declines later in the week if US data reinforces expectations that the Fed will begin raising interest rates before the end of the year.
WTI Oil has also suffered from Dollar strength and is at risk of dropping below a one-month low at $57. The bulls will likely try to push WTI higher, with volatility increasing as the weekly US Crude Inventory report is released on Thursday afternoon. The markets will be looking for increased signs of a correlation in declining oil rigs and reduced trade surpluses, but there will probably be hesitation towards purchasing with such an oversupply remaining in the markets.
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