General market theme
The US dollar was the main performer on Friday as the US currency gained against most of its counterparts during the last session of the week. We had expected a strong month for the buck at the beginning of August, however traders were expecting more from the Fed and the dollar, and have been dumping the currency up until recently—though on Friday the story was different.
However, we need to point out here that this doesn’t constitute a change in sentiment. The dollar is still the only currency not in easing mode, but investors are still reluctant to back it in a massive manner since they don’t see a Fed rate hike coming any time soon, so we need to remain vigilant in case of another reversal.
Price action highlights
The euro pushed towards the 1.1300 level on Friday, and as the dollar gained control of the pair the rate ended up breaking below this level on overnight trading as markets opened last night. As we mentioned above the dollar has been on the advance against its major counterparts at the end of the week, and the question now is whether it can sustain this momentum this week.
We could expect a pullback towards the 1.1300 area today as there’s a lack of any fresh news, and that’s the area that will decide whether the dollar will continue pushing the rate lower.
The cable was rather active on Friday and declined in the morning European session, dropping below the 1.3100 area to trade in close proximity of the 1.3000 level. The UK currency finally settled around the 1.3050 level and spent the rest of the day and overnight trading sideways as the momentum died down.
It will be interesting to see whether the pound will be able to mount a correction attempt back above the 1.3100 level as the week progresses, and how the dollar will react.
Focus of the day
There’s nothing in the calendar today to attract investors’ attention and we expect a day of limited price action in the currency markets. The week ahead holds a few important reports and events so we’re not in for a totally quiet time, but for the day ahead we would expect careful positioning and mostly dollar-related moves on the back of Friday’s momentum to the upside.
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