The Chinese trade balance data is weighing on the sentiment over in Europe and this is going to keep investors on the side-lines. Although, the recent data out of China has shown improvement and it confirms that both the internal and external factors are becoming stronger. However, China's export engine went down a gear and this is what investors do not like. The trade surplus also inflated to $46.7 billion.
Over all, you can say that the numbers have painted a dull picture to start the third quarter of this year. It is important that global demand improves because that would imply that the world economy is healthy.
St Louis Fed president James Bullard and Minneapolis Neil Kashkari both think that inflation is the key to increase the interest rate further because the evidence is not supporting for another hike this year. William Dudley, the New York Fed will also share his thought later this week. Dudley is known for his hawkish stance and investors will be looking at that how far he can stretch the support for a rate hike.
The tail wind from the US NFP data which helped the dollar index did not last for long. It is your downward trend which has more strength and we do think that the dollar index could be pushed all the way to the 91 mark. This means that the EUR/USD, GBP/USD, AUD/USD and USD/JPY pairs will not only recoup their losses from Friday but they will also score more gains. In terms of economic data, it is going to be a very boring day and there isn't anything strong enough which could pause the dollar weakness against these pairs.
A lot of dollar weakness is mainly due to the disappointment around Trump's ability to deliver on his promises. Realistically speaking, we have not seen anything yet on the tax reform or on the fiscal front. That is keeping the pressure on the inflation and the Fed just can't take the chance to make a mistake and therefore they cannot be overly hawkish. Although this week, we will get a more updated picture on the US producer price index and consumer price index. Both are essential to make any conclusion about the overall inflation.
The black gold is struggling to make any major upward move as the chief focus during the OPEC meeting was on the compliance in their meeting yesterday. It appears that the technicals are supporting that we may move lower and retrace more. We need to break above the 50.50 mark and that would involve fresh money joining the rally. If the compliance issue among the cartel improves, speculators would try to push the price higher. However, even then the upside is limited due to the lack of any meaningful demand. Investors would look closely at the export numbers from Saudi Arabia and if the country obeys its own rules and limits the export to 6.6 m barrels a day, we could see the price breaking the current consolidation zone.
The Gold Futures has seen some life on the back of the dollar weakness. Usually, when the equity market is this strong, investors become a little oblivious and they forget to hedge. Basically, who wants to invest in gold when they see the equity markets making all-time highs? The yellow metal may continue to recoup its losses but the upside is capped by the resistance of 1270. North Korea is the wild card right now after the US along with UN which slammed more sanction. This would prompt for more missile tests and sparks more geopolitical pensions. The support is at 1245 mark and if there is any interest we may see the price taking another steb towards the 1270 mark.