General market theme
On Friday the focus was on the US dollar as the currency was posting gains across the board against all its major peers. The buck received fresh support from investors without an obvious reason, but the truth is that investors were looking ahead and weighing whether the Fed will move forward with another rate hike in the coming months.
The case for a rate hike this month is rather weak, but as we move closer to the end of the year market participants realize that we should at least expect one more rate increase, and that possibly weighed on their decision to load their dollar portfolios.
This week we will have plenty of events mainly from Europe to offer fresh opportunities for traders, and it will be interesting to see how the euro and the pound will react to this new dollar advance.
Price action highlights
The euro extended its correction to the downside on Friday and found itself testing the 1.1200 support level as the US currency was pushing forward. In the end the support held its own, and as long as the euro is trading above it the momentum hasn’t totally reversed, though it remains to be seen how the Single currency will trade this week as there’s a host of new reports coming in.
If the euro breaks below the 1.1200 level then we should be prepared to see another test of the 1.1120 lows, should the dollar continue its current momentum.
The cable posted another swing lower on Friday but seems more resilient than the euro at this time. The push lower brought the pound to test the 1.3250 support area from where it bounced higher, but the momentum is still pointing lower.
The pound is receiving support from its fundamental outlook as recent reports from the UK have been optimistic and showed that the Brexit aftershocks haven’t done much damage to the economy, at least not yet. Similar to the euro there are a few important reports pending for release this week, so the pound’s current direction might change before too long.
Focus of the day
At the beginning of the week the economic calendar is barely empty, without any reports or events pending for the day ahead. The only noteworthy events are a couple of Fed officials speaking in publi,c and it is worth keeping an eye out for any supportive comments in favor of further rate increases or otherwise. Other than that we’re expecting the majors to take their cue from Friday’s momentum.
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