General market theme
Over the past couple of days the US dollar has been in focus in light of Janet Yellen’s speech as investors were hoping for a more clear indication on how bullish the US central bankers are on a rate hike soon. The Fed Chairwoman was pretty clear in her remarks and hinted that a higher rate policy would be applicable in the coming months offering further support to the dollar that gained across the board on Friday. Yesterday’s banking holidays in the UK and the US meant that trading volume and price action was pretty minimal allowing the rest of the global currencies to correct against the buck however as traders return to their desks the focus falls on the US dollar once again ahead of Friday’s Non-Farm Payrolls report.
Price action highlights
The euro dropped to the 1.1100 level on Friday on the back of the bullish Yellen comments regarding the future Fed policy as traders were very keen to buy dollars once more after the modest correction earlier in the week. Yesterday’s price action saw the euro correcting higher on the back of lower volume and limited participation and the rally drove the rate towards the 1.1150 area. Looking ahead the bias remains bearish for the euro ahead of the NFP report on Friday and in light of Yellen’s remarks but there’s plenty of market data between now and the end of the week, as long as the euro remains below the 1.1200 resistance the sentiment will point lower but we need to be cautious of any volatility in the coming sessions as there’s a number of important reports pending for release.
The cable traded in a similar pattern with the euro during the last couple of sessions, giving up ground on Friday but recovering over the past 24 hours and overnight the currency spiked above the 1.4700 level. The sentiment is mixed for the UK currency, on the one hand the dollar seems to be attracting more investors’ interest in light of stronger Fed bias while the pound is also rising on the back of stronger Remain momentum on the upcoming referendum. More volatility is expected ahead as the release of the PMI reports ahead of Friday’s NFP reading could cloud investors’ focus so we need to remain cautious until we get a clear indication on where the pound is heading.
Focus of the day
The German unemployment figures and Eurozone inflation reading will attract our attention during the early European hours while later in the day the US Consumption levels and the Consumer Confidence report could add further support to the advancing dollar. There are diverging forces driving the major currencies today so caution is advised for the session ahead.
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