Last week was a terrible one for the US Dollar with the American currency dropping heavily against its major counterparties and posting significant losses. A number of weaker than expected reports from the US and mixed comments from Fed officials have caused a broader profit-taking attempt from traders that preferred to bank some of their profits when the rate hiking agenda came under doubt.
However now that we’re looking ahead into a new week the situation might look a bit different and the rally in the Euro and the Cable could have hit a wall. The key reason we’re making this assessment is that both European currencies seem to have hit a wall of resistance and could find it difficult to further extend their gains. We wouldn’t expect an immediate reversal and a Dollar rally straight-away but we think that it will be difficult to see more uptrend ahead.
The Euro made it to the 1.0850 barrier on Friday but it was clear that it found it hard to sustain its gains as it quickly retreated lower and tested the 1.0730 support floor. Looking ahead this week we believe that the immediate price action will most likely be a consolidation attempt above the 1.0730 support. A break below this support would lead to the 1.0650 area and should the rally pick up any momentum it could drive the Euro below the 1.0600 area.
The Cable painted a similar picture on Friday as it also hit a resistance wall at the 1.5050 level after the release of the employment-related data. Even though most of the data printed slightly lower than expected the UK currency found enough momentum to initially make it to fresh highs but that wouldn’t last long. The Cable ended the day testing the 1.4920 support and we regard this as an important pivot point. Any break below this area would clear the path for the 1.4800 area.
For the day ahead we’re looking at an almost empty calendar that should allow the major instruments we monitor each day to consolidate around their current ranges. The week holds a number of important reports down the road and the important question is whether the rally in the Euro and the Cable is over and whether an immediate reversal will replace it.
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