General market theme
Limited price action at the beginning of the week in the major money markets even though we have a number of important events ahead of us this week. The dollar is expected to be on the forefront of attention in the coming days as the Fed is holding their monthly meeting on monetary policy. Even though we don’t expect any changes in rates, the accompanying statement should reveal the central bank’s bullish agenda given the recent encouraging reports from the States.
Given the negative bias that the rest of the global currencies have, the dollar is expected to attract investors’ attention as it is the only currency heading towards a higher rate policy, while all the rest are either lowering their rates or heading that way.
Price action highlights
The euro managed to recover higher at the beginning of the week even though the attention is on the dollar, and the bias is in favor of the US currency. Higher than expected IFO figures allowed the euro to push above the 1.1000 level overnight, but the question now is whether the single currency can hold on to its gains ahead of the FOMC meeting later this week.
Even though the ECB is not planning any changes at this time and the Fed is not going to alter things either, we believe that the consensus is towards a reversal lower again and a possible retest of the 1.0950 lows ahead of the Fed meeting.
The cable traded sideways during the first 24 hours of trading this week as there was a lack of any UK-related news or developments. The bias remains to the downside since the pound’s outlook looks grim, and with the dollar expected to gain pre-FOMC, we could see further losses in the UK currency pair.
The 1.3000 area will come into focus if the pound drops below its recent lows, so we might as well attempt to follow it lower going into the FOMC meeting in a couple of days time.
Focus of the day
In terms of fresh reports the economic calendar only offers a couple of events scheduled for today and both have to do with the US market. The release of the Services PMI reading from the States along with the Consumer Confidence levels are expected to prepare investors for the upcoming Fed meeting, and with expectations making word for mixed results we could see some volatility in the dollar today, but as we mentioned above the bias is in favor of the US currency.
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