Monday has been a smooth trading day for the major money markets and with a calendar empty of any important news or announcements we saw little price action and reduced volatility. The currency in focus remains the Dollar at the beginning of the week after the US jobs report last Friday that printed rather mixed and it comes down to how investors will interpret the reported labour market conditions.
The question is whether the extended good performance of the US employment sector has been good enough for the Fed to finally decide to pull the trigger and raise interest rates and our opinion is that the issue is finally balanced. The Fed doesn’t have to weigh in only the domestic progress of the economy but the global slowdown in other markets, namely Asia, and decide whether they should move forward or wait for another month.
Yesterday the Dollar showed that investors and traders are also being sceptical about this issue as the US currency didn’t follow up on its gains on Friday but rather corrected against its peers. However as we move closed to the date of the decision it will become clearer whether traders and mostly speculators are willing to bet on a Fed hike so for the time being patience and caution is the way to go.
Regarding the price action in the majors, as we mentioned above the Dollar was on the backseat for the first 24 hours of trading. The Euro has managed to run a relief rally of almost 100 pips trading around the 1.1200 area this morning however the fundamental drivers are too strong to convince us that the Euro is on the rise.
With the ECB hinting on potentially more easing and the Fed widely expected to hike rates this month or the next the outlook for the Single European currency is bearish. Good opportunities to sell the Euro is the way to go with a view to revisit the 1.1000 lows and potentially lower if traders back the Fed to move ahead soon.
Similar to the Euro, the Cable is also running a rally higher over the past 24 hours and this morning the currency pair is trading around the 1.5350 area having come off its 1.5200 lows. There have been no developments to propel the Pound higher but after 9 straight days of losses for the UK currency it was high time for a correction.
For the time being the bias on the Cable is bearish and any opportunities to sell the pair higher are welcome, caution is advised though as the Industrial and Manufacturing Production reports are pending for release tomorrow. Taking into consideration the recent slowdown across all business sectors in the UK we could see a lower reading that would put the Pound under pressure again.
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