General market theme
Dollar reigns supreme at the beginning of the week as the currency has received renewed support on the back of the Non-Farm Payrolls report and investors are once again building up their pro-dollar positions. The US currency has been gaining against its major counterparties and even though the euro and the pound have held on their current levels the dollar has been climbing higher versus the rest of the global currencies.
The uptick in wage growth is the reason behind this dollar advance as investors are hoping it will lead to a stronger US Retail Sales report pending for this coming Friday. Given that the more important events are scheduled for the second part of the week the markets are still trading on the back of the NFP release for the time being.
Price action highlights
The euro gave up some ground against the dollar but its decline has been a light one as the European currency has largely managed to remain afloat around the same level. The single currency has traded as low 1.1370 overnight but there’s a clear lack of momentum behind this move and this could lead towards a correction to the upside should a positive piece of news comes up. At any case any serious correction needs to overcome the 1.1400 resistance first so we should employ some patience as the more important events for the euro are scheduled towards the end of the week with Q1 GDP levels being the most important.
The cable rebounded higher yesterday but the rally was short-lived and even though it made an effort to reach for the 1.4500 level it failed and the rest of the day was a push lower and the pound ended the day around the 1.4400 area once more. The big event this week for the UK currency is the release of the Quarterly Inflation report from the BoE hence traders remain cautious in light of the upcoming report and the lingering risk of a Brexit. The bias remains to the downside especially after the lower reading of all the PMI reports but for the cable to start pushing lower once more fresh stimulus is needed and a bearish Inflation report might just be the catalyst.
Focus of the day
Only a handful of tier-2 events are scheduled for the day ahead and we believe that market participants will hesitate to take any serious trading action as the week holds more important events starting tomorrow. The UK Trade Balance data are important to keep an eye on while Fed Dudley’s speech might provide some fresh insight into the minds of the central bankers.
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