Risk Aversion Plagues the Markets, But what about the Dollar?

Monday’s light economic calendar did little to ease pressure on the Dollar, with the widening in the U.S goods trade deficit weighing, the weaker Dollar through the year having done little to drive demand for U.S goods, despite Trump’s best efforts to return manufacturing to U.S shores and make some inroads into the sizeable deficit that has been around for more than a few years.

Interestingly, there was news hitting the wires at the start of the week of the U.S President almost demanding tariffs on goods from China, to the bewilderment of those attending the meeting. So yesterday’s numbers will likely give Trump greater conviction to get the tariffs in place sooner rather than later, the U.S President showing a lack of concern over the possible ramifications of such tariffs to the U.S economy and beyond.

While there will be plenty of concern over what’s next from a trade perspective, with Trump also looking to terminate the North American Free Trade Agreement in search of a better deal, North Korea’s missile test, which saw missiles flying over Japan’s territories, is certainly of far greater concern going into the European session.

Appetite for the safe havens surged through the Asian session, with gold breaking back through to $1,300 levels and the Dollar slumping 0.37% to ¥108.845 at the time of the report

It’s the first time that North Korea has fired over Japan since 2009 and, while this is rightly considered to be a significant threat to Japan, it’s also likely to be a snub at the U.S, who have continued to stand by Japan’s side in both military and economic matters. It’s developing into a game of cat and mouse and, with the Chinese and Japanese having experienced issues of their own in recent years over certain territories, one does wonder how the various leaders will side.

The greatest concern for the markets will not be whether Japan decides to respond to the latest missile test with rhetoric, but whether China looks to get involved in any war of words that may evolve as the North Koreans continue to test Trump’s patience, which is known to be lacking at the best of times. One thing is certain, Kim Jong-Un has shown that he too is capable of moving the markets.

Looking ahead to the stats for the day, there are no materials stats scheduled for release out of Europe through the rest of the European session, with economic data released this morning including German consumer sentiment figures, together with French 2^nd quarter, 2^nd estimate GDP and July consumer spending numbers.

German consumer confidence and French consumer spending figures were positive providing further support for the EUR, which looks to be on its steady march to $1.20 levels, with France’s economy growing by 0.5% in the 2^nd quarter, according to 2^nd estimate numbers, which was in line with 1^st estimate and forecasts.

The key number out of the U.S this afternoon will be August’s consumer confidence figure, with forecasts pointing to a slightly softer level from July, though one does wonder at what point will the U.S administration begin to hit consumer confidence, current levels attributed more to a tightening labour market and the positive economic environment than the failings of the U.S administration.

Softer consumer confidence in August would be another blow to the Dollar ahead of a heavy second half of the week on the data front, with inflation, nonfarm payrolls and wage growth to name but a few of the stats the markets will need to slice and dice before the week is out, though one does need to begin asking how much further the Dollar can fall, with the U.S economy far from collapse.

At the time of the report, the Dollar Spot Index was down 0.11% at 92.109, with the EUR up 0.12% at $1.19939, with the Dollar likely to struggle for yet another day, salvation possibly lying in this week’s nonfarm payrolls.