The US Dollar seems to have got its mojo back over the first trading session of the week on the back of the stronger Non-Farm Payrolls report on Friday. As Asian and European traders came online and had the opportunity to react to the robust employment figures that printed in favor of the buck on Friday they propelled the currency higher allowing it to recapture some of the ground it lost during last Thursday’s short squeeze.
The Dollar appreciated against the Euro and the Pound as traders once again realized that even though positioning in the market was overly skewed in favor of the Dollar – hence the short squeeze – this had happened for a reason. The difference in fundamental values between Europe and the US and more importantly the divergence in the monetary policies between the ECB and the Fed can drive the European currencies nowhere else but lower against the Dollar.
As the week progresses and we move closer and closer to the FOMC meeting that will most certainly raise interest rates in the States the Dollar should enjoy more gains. There have to be a lot of traders that got stopped out of the market during last Thursday’s correction rally and they would want to re-establish their pro-Dollar positions hence we expect more demand for the US currency.
Price action in the majors was interesting during the first session of the week, the Euro made its way lower towards the 1.0800 level where it tested the support area there and found some demand to correct a bit higher overnight. This morning the release of the Eurozone GDP report could provide some support to the Single currency but if for any reason it reveals any signs of weakness then we should see another decline. The bias is towards a further correction lower and our targets lie around the 1.0700 level.
Similar to the Euro the Cable also declined during yesterday’s session and lost the 1.5100 support area to trade to the 1.5050 level. The UK currency had benefited from Dollar’s decline last week but now its outlook hinges on fresh UK data and US Dollar demand. Today the release of the Industrial and Manufacturing Production levels should provide some friction for the pair and any signs of slowdown could accelerate the losses towards the 1.5000 area.
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