General market theme
A day of corrections in the major instruments yesterday after the strong losses last Friday, when the US dollar surged higher, pushing the euro and the pound lower while the global indices tested new lows and gold was on the red.
However, during yesterday’s session the dollar took a step back, allowing for a corrective action in the rest of the majors, and the question becomes whether the buck can drive further up. Fresh Fed comments casted doubts on whether there could be another rate hike this year, so investors might be a bit skeptical.
Attention will also turn to Europe with the release of the ZEW Survey and the UK inflation levels pending for this morning, where we expect a bit of volatility.
Price action highlights
The euro traded sideways yesterday after bouncing from its recent 1.1200 lows and spent the day trading between this level and the 1.1260 area. The momentum lower has diminished for the time being, and we now need fresh stimulus to drive the Single currency.
Today’s ZEW Survey release could be a factor that will force investors to take action. The release is expected to show mixed signs of progress so we might be in for another day of sideways price action but if we see a break into fresh lows then the euro could look for support further lower.
The cable corrected to the upside yesterday and made its way to the 1.3350 area before pulling back for an overnight correction. The UK currency has been pretty resilient against the US dollar recently, so it took advantage of the opportunity to hike higher over the past 24 hours and is now facing the release of the inflation data.
The inflation report is expected to show signs of progress in the UK as the cheap pound could be helping the economy perform in a better than expected manner, and fresh gains could be the next step for the UK currency.
Focus of the day
As we mentioned above investors will be focused on the release of the UK inflation data early in the morning, while a bit later the ZEW Survey levels will also take a toll on the price action. Other than that the calendar is empty of any other market-moving events, so if these reports don’t spark any interesting price action we might be in for another day of sideways trading in the majors.
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