General market theme
Price action at the beginning of the week was limited in the major currencies and instruments we monitor in our report as the lack of any fresh developments and the May holiday in several markets like the UK didn’t provide any opportunities for investors. The fundamental bias is still the same and the US dollar remains in the backseat allowing the high beta currencies to gain on its expense. As we mentioned yesterday the event of the week is Friday’s Non-Farm Payrolls report but not in the way we usually approach it: a weak reading will confirm Fed’s intention to hold monetary policy steady for now and send the dollar even lower while a robust printing might drive investors to give dollar a second chance and possible shave off some of its recent losses. Today however the focus is on Europe and the UK with the release of the European Commission’s Economic Forecasts and the UK Manufacturing PMI reports.
Price action highlights
The euro has been rising over the past few days and yesterday was no different as the currency moved to the upside making its way above the 1.1500 level. The single currency moved higher and this morning it’s trading around the 1.1550 area having overcome the 1.1470 resistance level but what we need to note is that the euro seems overbought to an extreme and the momentum behind the current rally seems to be diminishing. Such a rally to the upside doesn’t seem likely to continue forever but for a correction to start some kind of spark is needed which is not available at this time. However we need to be careful and not bet the farm on euro’s rally higher as from a technical standpoint the move to the upside starts to look really overstretched.
Similar to the euro the cable extended its gains higher and yesterday made an effort to reach for the 1.4700 level and indeed this morning the UK currency managed to edge above this level. The release of the UK Manufacturing PMI report will pretty much dictate whether the pound will be able to climb above the 1.4700 level and make its way towards the 1.4800 area or a correction towards the 1.4600 support is next. Fears of a Brexit remain valid but as long as the dollar remains on the defensive the cable has a scope to continue moving higher.
Focus of the day
The release of the European Commission’s Economic Forecasts and the Manufacturing PMI reading from the UK are the only noteworthy events of the day today as the economic calendar is light at the beginning of the week. We don’t expect much of a reaction from the euro to the release but the pound is likely to take its cue for the PMI release today.
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