Risk On with the Dollar On, for Now

Asian and European equities have sent mixed signals this morning, with the major Asian markets closing out the day with solid gains, whilst early gains across the European majors were given up by the time of the report, with the DAX down in the red, though we would expect the day to be relatively choppy.

The equity markets seem to have mixed feelings over the noise from Capitol Hill and caution would certainly be justified, the investigations on going and the witch hunt likely to be in full swing for some time, further allegations more than likely to hit the wires as the investigation progresses.

We will expect volatility and uncertainty to persist over the near-term, particularly when considering the possibility of more scandal hitting Trump and the U.S administration at a time when members of the Republican Party have already begun to distance themselves from the U.S President.

While European equities are in for a choppy day, the Dollar has been in recovery mode through the early part of the day, the Dollar Spot Index up 0.24% at 97.378 at the time of the report, with the EUR and the Pound the biggest losers against the Dollar in the early part of the European session, the EUR down 0.35% at $1.1167 and cable down 0.44% at $1.2978.

A lack of material macroeconomic data will likely be a positive for the Dollar through the day as the markets are left with little else to consider but the FOMC monetary policy meeting minutes scheduled for release on Wednesday. The show must go on and, while pressure will likely remain on the Dollar, the general view is that the FED will continue on its projected rate path, barring any economic meltdown.

FOMC voting members Harker, Brainard and Kashkari are scheduled to speak through the course of the day, which could provide some insight into how the FED is looking towards a June rate hike, economic data going into the 2^nd quarter yet to have pointed to a solid rebound from the weakness in the 1^st.

Kashkari is unlikely to raise the stakes for June rate hike, whilst Brainard may well have the greatest influence on the Dollar should she make any comments on monetary policy, the markets now not only needing to consider interest rates, but also the FED’s balance sheet and when a sell-down will begin.

The fall back in the EUR will be well received by the markets through the European session and with U.S futures pointing to gains in the Dow and S&P500, supported by further gains in crude oil prices ahead of Thursday’s OPEC meeting, we can expect risk to be on with the Dollar on the front foot ahead of today’s FOMC member commentary.

It’s going to be tough for a more sustained rally however and we could well enter a period of profiteering, the markets all too conscious of the fact that a mass sell-off could ensue at any time should the investigations into the U.S administration’s dealings with Russia raise the stakes for an impeachment, Trump support on Capitol Hill waning from an already weak position, the U.S administration having failed to fill a large number of posts that would have provided the necessary support through the current crisis.