Volatility and frequent change of direction has been the theme in the currency markets over the past couple of days. The major currency pairs have been illustrating elevated levels of volatility on the back of the US jobs report released last Friday and leading up to the US Retail Sales levels scheduled for release later in the week.
It is clear from our comments above that market participants have focused their attention on the price action of the US Dollar and its outlook is what dictates the price action in most instruments. That is true for two reasons: first, we haven’t had any fresh fundamental developments from the Eurozone or the UK recently and secondly the fresh evidence of growth from the US have suggested that the Fed is well on its path to raise rates soon.
As such traders are trying to pick the best time and level to position themselves ahead of this development that is expected to unfold over the next couple of months. In the short term the aftermath of the US jobs report was a stronger Dollar, the US currency might have retreated at the beginning of the week following President Obama’s comments but we believe that the directional bias remains the same and the upcoming Retail Sales report will confirm it.
Over the past 24 hours, volatility in the majors was once more elevated. The Euro initially dipped to 1.1220 but later in the day re-tested the 1.1300 area. As we mentioned above the bias in the Euro points lower even though the Single currency enjoyed some short-term gains. A successful breakout of the 1.1200 support floor will clear the path for the Euro to retreat to 1.1100, we might have to wait until tomorrow’s Retail Sales report from the US for that to take place though.
Cable was again very much active in terms of price action and changes in direction. The UK currency started the day pointing lower but the initial flows were reversed and by the end of the day the Cable had traded above the 1.5400 area that we mentioned in our report yesterday. However today the Cable might come under pressure as the Industrial and Manufacturing Production reports are expected to print lower and we could see the UK currency declining towards the 1.5300 area.
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