On Friday volatility remained elevated in the major markets we’re monitoring in this daily report and the reason has to do with the recent string of news and reports from all over the globe. The main driver behind the moves in the major currency pairs has to do with the diverging monetary policies between the large central banks and the expectations set for their next moves.
To be more specific, the Dollar was the major winner on Friday and, truth be told, the US currency has enjoyed quite a ride in the last few days based on the assumption that the Fed will not delay pulling the trigger on raising rates later than the end of the year. But more to that, the Dollar rally versus the Euro for example was extended due to ECB’s intention to further ease their own monetary policy driving traders to liquidate any long positions they had on the Single currency.
Going into some more detail, it is clear that things are not looking so good for the Euro that had enjoyed some gains earlier in the month. We’ve mentioned numerous times when the Euro was hitting the 1.1500 highs that this trend was founded on Dollar’s weakness rather than anything else and now that traders are realizing that the Fed will eventually pull the trigger at some point Euro’s own weaknesses are surfacing.
During the previous 24 hours of trading on Friday, the Euro tanked from the 1.1100 area to trade as low as 1.1000 as traders were offloading the currency on the back of Draghi’s comments on any further potential easing. The bias on the currency is bearish but we need to point out that the decline has rendered the Euro oversold and with traders preferring not to overload themselves with more Dollars ahead of the Fed meeting this week we could see a bounce higher in the short term so caution is advised.
Taking a look at the Cable this morning we find the currency trading just above the 1.5300 area having lost more ground on Friday when the UK currency dropped from the 1.5400 area to trade as low as 1.5300 before correcting to the 1.5320 area where we find it this morning. The Pound has attempted several times to break above the 1.5500 barrier during the previous week but failed so traders looked to dump the currency that turned negative.
Heading into this week we will have plenty of opportunities to trade the Cable and the rest of the instruments monitored on this report as the economic calendar is filled with upcoming events. What is important to note though is that caution is advised as the developing trends might not progress as expected since traders will look to remain defensive ahead of the Fed meeting on Wednesday. Timing our trades will be crucial this week so we need to remain cautious and focused.
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