At the end of the week price action in most major instruments continued on the same tempo and theme as we’ve seen during the previous days. Market participants drove the Euro to new lows while the Cable remained directionless yet volatile keeping in line with their performance all week long. In terms of anything new from any fundamental front Friday was a quiet day and offered nothing fresh.
The main market themes that are driving the price action at this point and are expected to continue doing so this week as well are the rise of the Dollar over the Euro and the rest of its peers and the solid performance of the British Pound against it. The US currency has received important support from the recent Yellen semi-annual testimony where the Fed boss commented that the central bank will move forward with a rate hike before the end of the year. As a result the Dollar has seen back to back gains and we expect this bullish sentiment to continue going into this week.
At the same time the British Pound has also seen a solid performance against the Euro and the rest of the currencies while remaining afloat against the rising Dollar. This is very important to note as the British currency is one of the few currencies that has been able to sustain its current price levels against the Dollar in the past couple of weeks. Bullish comments from BoE Governor Carney that the central bank might also be raising their rates before the end of year, which is a bit too optimistic in our view, has offered the currency enough support to trade around the 1.5600 area for a while.
In terms of recent price action, the Euro has seen fresh lows on Friday trading in close proximity to the 1.0800 level. The Single currency seems to have broken through the 1.0850 support barrier for the time being but we will need confirmation of that to continue looking lower. As we mentioned above the sentiment is bearish with the Dollar on the rise and no fresh good news out of Europe. The decline has been overextended from a technical standpoint and a correction higher would not be a surprise but for that some kind of bullish spark is needed and we see none at this point.
As mentioned above, the Cable has been able to remain afloat over the past week and the recent price action has seen the currency pair trading either side of the 1.5600 level. The UK currency has formed a consolidation pattern between 1.5550 and 1.5670 and the exit from this formation will show us what’s next so at this time all bets are off. The fundamental forces behind Dollar’s and Pound’s rises can drive the Cable towards either direction so we need to remain cautious.
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