An interesting twist of events in the currency markets during the past 24 hours as the Retail Sales report from the US didn’t exactly thrill investors and traders. The consumer spending report came out slightly weaker than expected and as a result the US Dollar had to give back some of its recent gains against the other major currencies. However the more important question is whether this development will change Fed’s outlook to hike rates in the next couple of months.
We think that such a conclusion would be premature at this time and the actual report didn’t show any particular weakness, just not the strength that was eyed before the release. We believe that the Fed is on schedule to raise the rates and we have mentioned that we regard the September meeting as the most likely date. So from a fundamental point of view any correction in the US Dollar should be considered as opportunities to buy the currency at lower levels.
Taking a look at the technical outlook of the major currencies, we saw the Euro picking up some gains against the US Dollar on the back of the weaker Retail Sales report. The Single currency tested the 1.0700 level yesterday but failed to overcome it and settled lower for the day.
We could see further upside on the Euro in the short-term and the 1.0800 area seems like a good target if the Dollar continues to weaken but again this is a short-term outlook as the longer-term bias remains in favour of the US currency.
The Cable took advantage of the weaker consumer spending report from the US and popped higher making it all the way to the 1.4800 level. What’s interesting though is the fact that the Cable disregarded the inflation report that was released earlier and showed no progress in the growth of prices in the UK.
This points towards a possible delay in BoE’s plans to raise the interest rates and we could be talking about a 2016 date with inflation so stubbornly low. As such we believe that any gains in the Cable will most likely be short-lived and this could be an opportunity to sell high.
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