Currency markets were on damage control mode over the past 24 hours after a move from the Bank of China to increase liquidity by cutting rates. The central bank attempted to react to investors’ concerns about its slowing economy but its initiative might not be enough to reverse the already heavily bearish sentiment and the price action in the major FX pairs and stock indices showed exactly that.
The release of the US Consumer Confidence report added extra support to the weakened Dollar that attempted to claw back some of the losses it has suffered in recent sessions against its major peers. Indeed the US currency managed to end the day higher against both the Euro and the Pound but the lack of follow-through and the upcoming reports make us doubt whether the buck can correct further.
Today the focus remains on the US as the release of the Durable Goods Orders report is the most market-moving event of the day and analysts’ expectations make word for a slowdown in this key metric. Should the report print in the bearish manner analysts expect then we could be looking towards another swing lower for the Dollar that could give back its recent gains.
Price action in the major currency pairs we monitor daily has been smoother yesterday and we didn’t see any choppy action as we had in previous sessions. The Euro corrected lower on the back of the bullish US report coming off the 1.1700 highs to drop as low as 1.1400 intra-day. However the Single currency corrected overnight and this morning it’s trading around the 1.1500 area.
From a technical standpoint the Euro could go either way today but the fundamentals are not in favor of the Dollar hence the most likely scenario seems to be another attempt towards previous highs, especially if the Durable Goods report prints in a bearish manner.
Cable was on a bearish swing as well yesterday dropping below the 1.5750 area to hit 1.5680 before pulling back slightly higher overnight. This morning the currency pair is trading around the 1.5700 level and even though there’s a UK-related housing report scheduled for release this morning we believe that any meaningful reaction will come after the release of the US Durable Goods report. As with the Euro the most likely scenario is another run towards its previous highs should the US report confirm analysts’ expectations.
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