General market theme
April was a strong month for the European currencies and a terrible one for the US dollar, the US currency remained under pressure the whole month as expectations for a tighter monetary policy from the Fed don’t predict any rate hikes soon. As such last week the buck gave up more ground to the likes of the euro and the pound and gold as investors see this dollar weakness as the perfect opportunity to make a good profit until the US central bank change their mind about the domestic economy.
This week the most eagerly expected event is the release of the Non-Farm Payrolls report which will either confirm investors’ doubts about the strength of the dollar or provide a glimpse of hope that we might see higher rates in the next months. At the beginning of the week though the focus will be on the euro and today’s speech from ECB Draghi that could attempt to talk down the rising euro which has been on a 250 pips rally over the previous week.
Price action highlights
The single currency extended its gains on Friday and reached the 1.1470 area where a medium-term resistance is found even though the euro-related reports didn’t print in favor of the currency. Dollar’s weakness has been the driver behind this uptrend and while it continues the euro benefits and it will be interesting to see how the European currency will trade this week ahead of the US labor market report coming up on Friday. Today Draghi’s speech is the only risk factor for the euro and should a correction take place then the 1.1400 area is the short-term support for the time being.
The cable found it difficult to continue rising on Friday and finally after a string of new highs every day the pound seems to have found a top for now. The UK currency has reached the 1.4650 area but any attempts to overcome it proved fruitless and now the cable is trading sideways between its highs and the 1.4600 support level. The calendar today is relatively light and empty of any UK-related reports or events hence we might see some sideways price action at the beginning of the week for the cable.
Focus of the day
Apart from Draghi’s speech there is little in terms of market-moving events today in our calendar, the ISM Manufacturing report from the US is the other important report that is expected to print in a bearish manner and that could again confirm the bearish bias for the US dollar ahead of this Friday’s NFP report.
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