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US Dollar Index hits fresh highs for 2018.

By OFX

The US is back to work after an extended weekend for the Memorial Day public holiday where the nation remembers those in its armed forces who died serving their country. Understandably, it has been pretty quiet on the US political front over the past couple of days however it appears progress is being made with regards to a possible meeting between Donald Trump and Kim Jong-un. One of the North Korean leaders most trusted aides, General Kim Yong-Chol, is apparently on route to the States to try and reinvigorate efforts to get the two leaders to hold a summit. It’s not clear whether General Kim will meet President Trump himself however it seems both sides are trying to get the canceled June 12th meeting in Singapore reinstated or at least rescheduled.

Looking ahead, US Conference Board’s Consumer Confidence is due to be released later today, should we see an uptick in the forecasted reading of 128.2 the Greenback may have a reason to strengthen.

The Canadian dollar continues to weaken in the aftermath of sluggish oil prices. WTI crude has been on a free fall after talks between Saudi Arabia and Russia ending with both sides wanting to ramp up production by 1 million barrels per day. It seems market participants are taking profit and selling oil at an elevated price after the 17-month production cuts from OPEC and its allies curb the global oil glut. Oil traded as low as 66.30 dollars per barrel and at writing trades higher at 66.97.

The Canadian dollar short-term focus is the Bank of Canada’s interest rate announcement tomorrow. Governor Poloz and company are expected to leave the overnight lending rate at 1.25%.

Fundamentals have been light thus far this week. The most significant fundamental in the economic calendar will be Q/Q GDP; data is released at 8:30 am Thursday morning and the consensus is forecasted at 2% from a previous 1.7%. The GDP is the growth barometer the BOC monitors to aid in their inflation forecast models.

The world's focus is back on Italy today as coalition talks to form a government collapsed yesterday. With it seeming like we were getting close to a government between the populist Five Star and Northern League party’s being formed, Italian President, Sergio Mattarella pulled the plug on the talks meaning new elections in the Autumn are now likely. It seems the proposed choice of Paolo Savona as finance minister was enough for Mattarella to abort discussions given his anti-euro stance. Equity markets around the world are lower and Italian bond yields have jumped highlighting investor concerns what another vote could mean for the Italian economy and the Eurozone as a whole. The nightmare scenario is that populist parties harden their stance in the buildup to the next election and win on a campaign of exiting the euro. As unlikely as this is, the concerns will only add downward pressure to the single currency.

Eurozone data kicks off tomorrow with German Retail Sales and CPI numbers and an Italian 10-year bond auction, which wouldn’t normally be much to talk about however Italian yields are back in focus. EUR/USD was at its lowest since November last year. GBP/EUR is around the 1.1440 mark.

UK traders enjoyed a long weekend for the Spring Bank Holiday yesterday; however, despite no action on UK desks, there was plenty of movement for sterling crosses as Italian politics created volatility throughout the FX world. GBP/USD has dipped below 1.33 to currently sit around the 1.3280 handle as risk aversion hits the markets. There is little data of note this week from the UK with Friday's Manufacturing PMI being the only top-tier release. Expect Brexit news to be the main sterling driver of note until then.

From a technical perspective, the GBP/USD pair is currently trading at 1.3309. We continue to expect support to hold on moves approaching 1.3270 while now any upward push will likely meet resistance around 1.3330.

The Australia Dollar closed marginally lower against its US counterpart, opening this morning at 0.7527. Trading sideways for the majority of the overnight, the Aussie oscillated between resistance at 0.7580 and support at 0.7540, with all market participants finding little news to digest. Thinly traded for much of the day due to public holidays in the US and UK, the AUD found itself trading within a tight range.

With a bare macroeconomic calendar both domestically and internationally to drive momentum, sentiment provided the initiative with headlines from Europe and the US dominating market attention. At the slightest sign of trouble, investors found their haven in the Greenback, forcing it higher against all counterparts despite the public holidays.

The Australian Dollar now enters another day with an empty calendar to look forward to. Traders during the Asian session turn to equity and commodity markets for sentiment with their periphery focused on the headlines from the rest of the world to spark the market. Looking further into the week, Wednesday is a little more interesting with data from the US and NZ to spur the market.

The NZD/EUR cross was one of the most significant winners overnight, gaining 1% to 0.5980 as European markets opened for the week and yields continued to increase rapidly in Italy. A possible downgrade on review by rating agency Moody could be on the cards for Italy from its current Baa2 rating as the Kiwi tested yearly highs against the Euro.

The Kiwi remained resilient against the US Dollar in offshore markets as we see another relatively quiet day domestically. A raft of economic data is due to be released starting Wednesday with the RBNZ Stability report released followed by RBNZ Governor Orr due to testify about said report before the Parliament Select Committee in Wellington.

The New Zealand Dollar opens this morning at 0.6915.