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Analysis

Dollar rebounds after disappointing US jobs data, could the DXY attempt a recovery?

The US Dollar Index (DXY) has rebounded slightly early on Monday to trade around the 96.7 level at the time of writing, despite the USD sell-off that transpired following the latest United States employment report coming in far below market expectations.

Despite shedding over one percent so far this month, the current levels in the DXY will be attractive to potential Dollar buyers. The Dollar has managed to show its resilience to periods of weakness several times over the past 12 months, and investors will be closely monitoring whether it will be able to take this latest setback from the employment report in its stride.

What is more concerning for the DXY moving forward is that several US economic indicators in the second quarter have suggested that US economic growth momentum is cooling, raising speculation that the Federal Reserve will need to cut interest rates over the coming months. The US central bank may well intervene on its monetary policy settings to sustain growth in the world’s largest economy, which is on the cusp of reaching its longest-ever expansion come July.

Even though ramped-up market bets for a Fed rate cut this year have created a somewhat Dollar-negative environment, those hoping for the DXY to capitulate may be left disappointed, given the relatively weak pushback from other G10 currencies. Economic woes continue to cloud the Euro’s outlook, while the Pound remains mired in the Brexit fog, implying that these fluctuations in the Dollar Index could only provide little upside to other global currencies.

Trade tensions are still seen as the most significant threat to both global growth and investor sentiment, meaning that the Dollar, Yen and Gold will remain attractive assets for investors if the prolonged trade tensions carry a threat to the global growth outlook.

Oil recovers as Saudi Arabia and Russia appear to agree on extending production cuts

Brent futures are making further strides above the $60/bbl support level and on course for three consecutive days of gains, after the Saudi Arabian Energy Minister expressed confidence that OPEC+ producers will prolong their output cuts programme through the second half of 2019.

With Oil prices recently flirting within a bear market, slowing global demand appears to be featuring prominently on the minds of investors, as the fallout from heightened trade tensions continues to be felt on the global economy.The sustainability of Oil’s recent climb could be determined by the outlooks ofseveral key industry bodies scheduled this week, whereby more downcast projections for global demandwill be used as a threat to prompt traders to continue chipping away atOil’s 15 percent year-to-date gains.

Risk appetite clawing back on Monday

Risk-on mode appears to be seeping back into the markets on Monday, with most Asian stocks starting off the new week on a stronger note. Gold fell 0.9 percent and is now trading below the $1,330 handle while the Japanese Yen erased Friday’s gains to trade above the 108.4 mark against the Dollar at the time of writing.

Asian currencies however are mostly weaker given the Dollar’s rebound. Today’s price action in Asian FX once again highlights the narrative surrounding Asian currencies which remains a Dollar-driven story, even as regional economies contend with the headwinds felt from the heightened uncertainties surrounding the global growth outlook.

Further bouts of risk aversion sparked by another escalation in trade tensions, particularly betweeen the US and China, could undo recent gains for Asian currencies, while severely curtailing appetite for risky assets.

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