Quite an erratic behavior from the Dollar yesterday with the US currency following different paths on the various currency pairs that is a part of. The Dollar has been on the rise during the previous few days but as we hinted in our analysis yesterday this uptrend might been overextended a bit a correction would have been natural.
As such the Dollar retreated against many of its peers with the exception of the Pound and allowed the likes of the Euro and even Gold to breathe a bit easier. Does that change the outlook of the currency? Hardly, especially since yesterday’s US-related reports printed even better than expected solidifying our view that the US domestic economy is fairing pretty well and the Fed is right to be considering a rate hike in every next meeting.
Taking a look at the price action, the Euro looked to claw back some of its losses yesterday and even though the fundamental drivers and recent central bank commentary remain bearish the Single currency mounted a moderate correction. The Euro traded to 1.1200 coming off its 1.1100 lows and the question now is whether it can move even more to the upside or this is a good place to re-establish short positions.
The focus will be on the IFO Survey today that is expected to print in a bearish manner, while at the same time the European PMI levels that printed yesterday were also bearish. This could mean that the correction yesterday was nothing more than a technical move for some relief and if indeed the Euro reassumes its descending trend then we should be looking for a retest of the 1.1100 lows.
Cable, on the other hand, extended its losses even though there was no fresh spark to weigh down on the currency pair which dropped to 1.5220. Our assessment here is similar to what we discussed about the Euro yesterday, the Pound has fallen more than 400 pips in a few days and this could be a good time for a correction to the upside.
Whether that would mean that the Cable will look to continue its downtrend or try and recover from these lows is another question. We believe that even though the Dollar is on the rise the UK currency is also well supported from a fundamental point of view so any fresh losses would not be too easy to come by so caution is advised when thinking about longer-term trades.
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