General market theme
Both the euro and the pound were among the winners in yesterday’s session with the two European currencies shooting higher against the US dollar. The main point of focus yesterday was the release of the UK labor market data which printed in a bullish manner allowing the pound to correct higher after its previous losses while the euro was always on the rise. Traders were looking towards today’s ECB meeting and it seems that there is a part of the market participants that thinks that the ECB will under-deliver today and leave interest rates unchanged for the time being hence the rise of the euro before the meeting. We think that there is a good chance that this will happen since we haven’t seen such a bad performance from the Eurozone to demand lower rates while the already cheap euro is helping recovery.
Price action highlights
The euro rallied above the 1.1000 level yesterday as we discusses above as expectations for today’s ECB meeting are set high with many investors betting on the chance that the central bank will take its time before changing the interest rates. This would not alter the currency’s outlook however it would trigger a short-squeeze rally higher as the majority of investors are positioned against the single currency. Should that be the case the rally would be short-lived so better to target a close target with the 1.1070 and 1.1150 highs being the best candidates. On the opposite case the euro will look lower and challenge the 1.1000 lows with the view to continue towards the 1.0950 level.
The cable also corrected higher yesterday on the back of the bullish labor market data and the lack of any US-related data this week. The robust wage growth allowed the UK currency to trade towards the 1.3300 level over the past 24 hours but now this rally will come under threat as the release of the Retail Sales data is expected to reveal considerable weakness in consumer spending in the UK on the back of the Brexit decision. The pound could give up its gains today should the report put it under pressure again and the 1.3050 lows come into focus once more.
Focus of the day
The ECB meeting and decision on the key interest rate is undoubtedly the focus of the day and will attract investors’ attention. However earlier in the day the release of the UK Retail Sales figures will make sure that traders get an early start in their day while the US Initial Jobless Claims levels released in the afternoon will most likely have a limited effect in the price action as traders focus on European reports today.
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