On Friday currency markets ended the week trading in the opposite direction from what we saw in the days before that and it is important to analyze that and see whether this is a change of direction or just a slight correction. During the last 24 hours of trading the previously advancing US Dollar gave up some of the ground it had gained and retreated lower against its peers.
Worse than expected GDP figures along with cooler than last month’s Personal Consumption levels forced the Dollar to retreat against the Euro and the Pound casting doubts over the currency recently rally. From a fundamental point of view though little has changed and it will take a stronger indication of weakness to force traders to offload their Dollar positions. From a technical point of view we could easily suggest that the recent development sets up a sell higher opportunity.
During this week we expect increased volatility across all currency pairs as there’s a host of economic reports pending for release while at the same time Greece’s negotiations with their creditors would reach a critical phase ahead of the upcoming IMF payment. The most market-moving event of course will be the release of the Non-Farm Payrolls report on Friday but even before that there will be plenty of opportunities for trading action.
Taking a look at the two major currencies we monitor daily, the Euro recovered to test the 1.1000 levels on Friday boosted by the worse than expected US GDP report. The Single currency has been under pressure for almost two weeks and this recent bearish development for the Dollar allowed it to breathe a bit easier.
However it will be interesting to see how the Euro will trade today as for this correction to turn into a full-scale reversal the 1.1000 area needs to be cleared. We’re not sure whether traders would risk backing Euro at this point and that could mean that the Single currency could turn lower again and retest its recent lows just above the 1.1800 floor. The focus today will be on the German inflation levels and the US ISM Manufacturing report.
The Cable traded in quite a similar way on Friday coming off its recent lows to trade to the 1.5300 area testing the extremes of its descending channel. The release of the US GDP allowed the Pound to slightly recover but again we need to see stronger action to believe in a broader correction. For the day ahead the focus will be on the Manufacturing PMI levels that could either send the Cable towards the 1.5400 area if they print higher as expected or send the currency to retest its 1.5230 lows if it misses its mark.
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