Even though at the beginning of the week the global money markets started their trading week with limited volatility and price action the same can’t be said for what we witnessed yesterday. After a calm start on Monday the major instruments we monitor each day picked up significant momentum towards their new direction over the past 24 hours and that direction was no other than in favour of the US Dollar.
We have called for such a development since last Thursday and even though it took market participants a couple of more sessions to realise what the fundamental and technical conditions suggested we finally saw our prediction come true. The US Dollar posted very significant gains against the Euro and the Cable, especially the former on that has declined over 350 pips since last week.
Bearish comments from ECB policymakers about the stability and future policy of the Euro-zone might have been the trigger behind the pickup in momentum in the Euro but the reason behind the decline haven clearly been more fundamental. The currency had enjoyed gains recently against the Dollar on the back of the buck’s weakness and this would have to come to an end at some time.
The Euro dropped heavily from the 1.1300 level yesterday morning to trade down to 1.1100 at this time and this was a considerable correction in the currency’s price. With little news expected over the next 24 hours we could see some consolidation at this time since it would be risky to suggest that further losses should be expected while the Single currency is so oversold. The release of the Fed meeting’s minutes in the evening however could provide fresh spark that could drive the price action again tomorrow.
The Cable was on a similar mood yesterday and also dropped lower for different reasons of course. The release of the inflation report revealed another month of weakness in prices’ growth in the UK and the actual levels printed even lower than expected. We have explained that such a development allows the Bank of England to remain firm on its low rates accommodative policy for longer thus pressuring the Cable lower.
The currency dropped to 1.5500 and might see more losses after the release of the minutes from the last BoE meeting. If the policymakers focus their comments on the stagnating inflation and suggest that a rate hike this year is more or less out of the question then we should expect further losses from the Cable.
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