We’re in the second week of August and volatility remains elevated in the global currency markets as traders and investors are taking some time away from their trading desks. As a result the trading volume is thinning and that can lead to greater volatility and wider swings even in the most liquid instruments so caution and a more reserved approach should always be employed during these “slow” months in FX trading.
Yesterday the market was mostly trading on the back of the US jobs report on Friday and even though as we explained in our analysis yesterday the report was strong enough for the Dollar traders have been a bit disappointed. We believe that this is a usual reaction from a market that always puts too much hope on these reports and now speculators are easing back on their pro-Dollar positions allowing the rest of the major currencies to gain a bit after the steady NFP printing last week.
We saw the likes of Euro and Pound climbing higher yesterday even though overnight we had a slight retracement in favor of the US Dollar. As the week progresses the focus will be on 2 main events: UK employment, US Retail Sales and the Eurozone GDP. So with the UK labor market levels scheduled for release on Wednesday we could expect further volatility today in all major currency pairs and we could see another attempt to capitalize on the temporary Dollar weakness.
The Euro traded above the 1.1000 barrier yesterday on the back of the weakened Dollar and some signs of good progress in the Greek issue. We believe that this reaction was mostly attributed to over-confident pro-Dollar traders unwinding their traders after the not so exciting NFP report. However this doesn’t mean that the Euro cannot gain on the back of it and with the release of ZEW survey scheduled for this morning we could see an attempt from the Single currency to gain a firm foothold above the 1.1000 barrier for the time being.
The Cable was also pretty active yesterday and after the disappointing – for some traders – release of the NFP report on Friday the UK currency gained significantly against the Dollar over the past 24 hours. The Cable rallied above the 1.5500 level to hit 1.5600 before the end of the day and it seems that the strength behind the UK currency is still there. It will be interesting to see how the Cable will trade today as traders will be focusing on tomorrow’s employment report.