General market theme
Limited trading action in the currency markets yesterday with the major instruments trading around the same levels in a day with no fresh news or reports to spur traders into fresh positioning. The broader theme is revolving around the current dollar weakness however the rest of the major currencies lack the momentum to benefit from it leading to narrow price action. The day ahead of us is expected to be a similar one as the only fresh reports are coming from the UK but traders are more concerned about the EU referendum and less about the recent economy figures. Patience is the key word as the markets are still trading in an uncertain environment and that doesn’t create the best trading conditions.
Price action highlights
The euro spent the day trading just shy of the 1.1400 level but without any appetite to challenge this short-term resistance. The sentiment is in favor of the euro as the dollar’s outlook is again under doubt following the miss in the NFPs and the reluctance of the Fed to continue supporting a higher rate guidance for the coming months but for the single currency to benefit more support needs to come from market participants. If the euro manages to gather enough momentum to break above the 1.1400 level then we could see a rally towards the 1.1450 area; otherwise more sideways trading should be expected.
The cable extended its gains higher yesterday, the currency didn’t reach the overnight highs that the fat-finger spike printed but the day was more positive than negative for the pound. The 1.4600 level is the short-term resistance for the cable that is correcting higher at this moment attempting to challenge the 1.4500 support, there is really no clear outlook for the pound at this time since the undecided vote regarding UK’s European future is the main risk factor. All bets are off right now and the only thing certain is that we should expect more volatility as we move closer to the referendum date.
Focus of the day
As we mentioned above the only piece of news today is coming from the UK in the form of the Industrial and Manufacturing Production reports that are both expected to print in a bearish manner potentially putting the pound under fresh pressure. Other than that there’s really nothing else on the docket hence we need to remain vigilant for fresh Brexit news as the UK GDP estimate later today is not expected to influence the price action.
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