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The dollar could outperform the euro

FX:EURUSD   Euro / U.S. Dollar
Equities sentiment continues to sour on the first trading day of 2019, which doesn’t bode well for the euro and gives further lift for the yen and other safe haven assets. The greenback receives some reprieve against the European currencies as well. 

EURUSD touched late-October highs marginally below the 1.15 barrier earlier in the day but turned negative as the psychological level attracted the selling interest once again. Market participants continue to sell the single currency on rallies due to growing concerns over the euro zone economy. As a reminder of slowing growth, the major December PMI prints in the euro zone showed that the indexes start heading into contraction territory and could hit in the months to come. 

In turn, further bearish signals from the regional economy could make the ECB refrain from hiking rates this year. So the ‘hawkish’ rhetoric will further be pushed back. Despite the risk of slower tightening by the Federal Reserve , the monetary policy divergence will still play into dollar’s hands. 

At the same time, the buck will likely underperform the yen as the Japanese currency demand will remain elevated due to a number of global risks including slower economic growth momentum, less fiscal stimulus, trade wars and other factors.