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Dollar Index Tests a Fresh 2018 High as Euro Slips

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USD

The Greenback recovered its early losses on Monday and made it to a new high for 2018. The dollar index, DXY, that measures the dollar against a basket of major currencies was able to breach a key resistance level of 94.20 and is one full point away from testing the highest level in eleven months. The dollar is the top performer for the year, as investors are satisfied with the economic outlook of the United States. James Bullard, the St Louis Fed president, said in Tokyo that the Federal Reserve should be cautious with further rate hikes as the policy is almost at neutral and the inflation expectations are still a bit low. He also noted the gap in the monetary policy that is occurring between the Federal Reserve and the European Central Bank and the Bank of Japan. In terms of data, the CB Consumer Confidence is due today.

 EUR

The single currency dropped to a new six-month low as the risks from Italy mount. The Euro bounced-off these lows when the Italian President Sergio Mattarella rejected a vocal critic of the single currency as economy minister. However, the action of the president angered the anti-establishment parties leading them to abandon their coalition plans and get ready for fresh elections. The elections that could take place in August might increase the chances of a referendum. Such fears affected the debt market where the 10-year yield spread between Italy and Germany rose the highest since 2013. The FTSE MIB which is the benchmark stock index for the Italian stock exchange is down more than 10% in less than a month.

JPY

The Japanese Yen traded higher against the US dollar as the demand for the safe haven currency increased due to the political and financial uncertainty. USDJPY rose to a high of 109.83 earlier on Monday on the news that the nuclear summit between the US and North Korea is on again, which lessened investor’s fears. However, the developments in Italy yesterday and its effects on the currency, stock, and Bond markets revived the demand for the Japanese Yen.

Gold

Gold prices dropped for the second consecutive day to hold steady near the $1300 level. Gold gained support last week from the cancelation of the nuclear summit between the US and North Korea. However, these gains faded as the summit is back on track. The political uncertainty in Italy leads to higher demand for safer assets such as gold, but the prices of gold remain capped by a stronger dollar.

Oil

US oil prices bounced-off six-week lows after dropping for five consecutive days. Oil prices were under pressure from the expectations that the top three oil producers will increase their production. Saudi Arabia and Russia agreed on Friday to raise their output by almost 1 million barrel per day to cover the shortfall in supply. President Vladimir Putin said yesterday that a $60 barrel is good for Russia, as higher oil prices will lead to higher inflation. The American Petroleum Institute will release the unofficial US crude inventories of the past week.

Major Economic Events

GMT Country Event Expectation Previous
14:00 US CB Consumer Confidence (May) 128.2 128.7


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