Strong Start for Dow Sees Dollar Lower, Sterling and Euro Higher Amidst European Malaise

- GBP/USD @ 1.4146, up 0.46%

- EUR/USD @ 1.2328, up 0.46%

- EUR/GBP @ 0.8715, up 0.09%

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Some big moves have been witnessed in the US Dollar at the start of the US market session with the currency falling across the board ensuring it to be one of the worst performing majors at the start of the new week.

The fall in the Dollar has coincided with a rise in US stock markets which suggests a classic risk-on move, the Dollar tends to do well when US stocks are under pressure, and reverse whens stocks are being bought.

This appears to be the case today.

The Euro and Pound are meanwhile looking firm, with stock markets in Europe staying under pressure.

"There’s a weird sort of lag in trading at the moment, something that has been in place since the Easter break. While Europe turns its attentions to what Xi will say in his potentially week-defining address at the Boao Forum in Hainan, the Dow Jones is recouping a chunk of last Friday’s losses with a 230 point rise," says Connor Campbell at Spreadex.

Markets will be focussing on Xi in early Asian trade on Tuesday, in light of recent trade tensions with the US; are we about to receive China's latest move?

"Rumours swirled that China was studying the potential consequences of using a Yuan devaluation in the trade conflict. Initially, the debate had little impact on the Dollar. Later there were again other indications that in depth negotiations between the US and China (with concrete results) were still quite some way off. The Dollar again proved to be the weakest link among the majors," says Piet Lammens with KBC Markets in Brussels.

Lammens adds that there was no high profile news to inspire Sterling trading which was instead mainly driven by technical consideration and by the broader moves in the Dollar.

Whatever the case, it appears seasonal flows associated with equity markets are dominating proceedings at the start of the week; indeed we have noted numerous times that from a flows perspective, April tends to favour the Pound and disadvantage the Dollar.

April is the end of the tax year and this tends to benefit Sterling owing to the repatriation of funds to the UK derived from foreign investments held by UK nationals.

We reported last week that Sterling was the best-performing major currency ahead of the weekend on the back of flows and it appears the theme is still with us today.

But beware, volatility is elevated and we could see recent moves thrown on their head.

"That increase seemingly involves the Dow ignoring Trump’s aggressive trade-tweeting from lunchtime to instead focus on the slightly more conciliatory tone struck by the President in his friendship comments on Sunday (not to mention the attempts by Larry Kudlow to calm things down last week). Yet, of course, there is every chance that the Dow will lose its head as the US session goes on, creating some dark clouds for the Asian and European markets to deal with on Tuesday and therefore continuing the out-of-sync trading," says Campbell.

Keep an eye on what China's Xi says, in particular.

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