General market theme
The US dollar was the big winner of yesterday’s price action even though there were no news from the US or elsewhere to support the US currency. Instead the dollar benefited from bearish news surrounding the rest of the major currencies and as investors looked for safer havens and more importantly a steadier interest rate policy the buck gained. Today the focus will remain on Europe and the release of the UK labor market data as investors are hoping for a positive reaction from the bearish pound if expectations are met and the report reveals good wage growth. We expect investors to turn their focus to the ECB meeting tomorrow hence price action might slow down after midday.
Price action highlights
The euro extended its recent turn to the downside yesterday and after a couple of days of correcting higher the single currency pushed lower once again. The bearish and actually worse than expected ZEW Survey weighed down on the euro that lost the 1.1050 support area and traded lower to retest its 1.1000 support level where the drop found some buying interest. For the day ahead we don’t expect much of a reaction from the euro, however tomorrow’s ECB meeting might be crucial as a bearish decision would threaten the 1.1000 area while a decision not to ease further for now could send the euro towards the 1.1000 level once more.
The cable pushed lower as well yesterday on the back of bearish remarks regarding the outlook of the domestic economy. The inflation reading printed higher than expected but the pound was not able to benefit from it as the IMF and rating agency Moody’s both discussed the growth prospects of the economy and painted a rather grim outlook. As such the pound dropped from the 1.3300 level of two days ago to trade to the 1.3100 area and today the price action will depend on how robust the employment data print. A good wage growth might allow the pound to breathe easier but the bias remains bearish.
Focus of the day
The only noteworthy piece of news in our calendar today is the release of the employment data from the UK as the rest of the day holds nothing of importance. The labor market data is expected to print at a steady manner while expectations are set higher for a good wage growth rate which might support the falling pound. Investors will look to focus on the euro after midday as tomorrow’s ECB meeting is the next important event ahead.
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