General market theme
The increased volatility in the markets continued yesterday in a day with two important events that attracted investors’ attention: the ECB meeting on monetary policy and the release of the UK Retail Sales. The central bank meeting was the event that drove volatility to new highs as market participants were eager to hear how the ECB will react to the recent rally in the euro that is not helping growth in the Euro area. Instead the central bank and its president Mario Draghi didn’t spend much time on talking down the bullish euro hence the initial rally higher.
Immediately after the end of the press conference though the single currency reversed its flows and drove lower to where it began the day signaling that there is limited confidence among traders over its outlook. Today’s PMI releases might be the reason why traders are not willing to back the euro so we need to approach today’s releases with increased caution.
Price action highlights
The euro initially spiked to 1.1400 as Mario Draghi didn’t sound too concerned about the rally in its price over the recent weeks but as his press conference was coming to a close and investors were assessing what they were walking away with the flows in the euro reversed. What followed was a downwards correction as strong and fast as its previous rally higher and the euro ended the day around the same area it was trading before the ECB meeting. Now the focus turns to the release of the PMI levels today and it will be interesting to see how they print and how the single currency will react to any bearish correction in the indices.
The cable had a similar day in terms of volatility as the first part of the day included a push higher following the euro to fresh highs even though the Retail Sales report printed lower. The UK currency has been showing a total disregard for any fundamental developments in recent weeks and even though all the important metrics have printed in a bearish manner the pound held strong. Of course after the initial drive higher the cable reversed its flows along the euro and corrected to where it began but we have to note the currency’s resilience which is proving impressive. No reports today for the pound so price action might be less volatile for now.
Focus of the day
The Eurozone PMI levels are the most important reports of the day today and after yesterday’s ECB meeting and press conference it’s important for traders to assess how well the Euro area is going at this time. Most reports are pointing higher but we need to be patient and see how they print along the US Manufacturing PMI later in the day.
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