General market theme
Volatility in the currency markets picked up pace yesterday, and as we move further in the week the attractiveness of the price action in the major instruments increases by the day. Traders’ attention was focused on the pound yesterday in light of the inflation report that printed strong for the UK currency, but the underlying theme as we know is dollar’s outlook.
Today this debate will get another strong argument either in favour of a more bullish or not US currency, as the Advance Retail Sales report is scheduled for release from the US. The consumer spending report is considered a key metric that illustrates how the domestic economy handles a higher interest rate policy, and a positive reading will increase confidence that a higher interest rate policy is the right way to go over the next months.
Price action highlights
The euro was rather unstable yesterday, and even though it started the day on a positive note it ended it in a totally different manner. Early in the morning the single currency made an effort to break to the upside and finally exit this sideways trading range towards higher levels, but the attempt lacked support and was quickly reversed. The rest of the day was spent with the euro trading near the bottom end of its price range, and it just might be the case that the euro will correct even further on the back of a strong US Retail Sales report. Should that be the case, then the 1.1300 and 1.1250 levels are the next areas of support for the European currency pair.
The cable on the other hand managed to print fresh highs yesterday on the back of the stronger than expected UK inflation levels. Analysts were expecting a robust reading on prices’ growth for the past month, but the actual printing of the report was even stronger than expected, hence the pound benefited and rallied briefly above the 1.4300 level. However, it seems that traders are skeptical ahead of the US Retail Sales report, as the cable also spent the rest of day correcting lower like the euro, and a possible retreat below the 1.4200 support is possible today if the Retail Sales report meets expectations. Next areas of support lie around the 1.4150 and 1.4050 levels.
Focus of the day
Obviously everyone’s attention today will be on the key consumer report from the US in the early afternoon, and a strong reading will be positive for the US dollar. Early in the morning though the Eurozone Industrial Production levels will also be released, and a lower printing as expected could set the tone for a bearish day ahead.
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