Currency markets continued trading under the same themes as the past few days and the price action was anything else that exciting. The Dollar was again in the backseat as the Euro and the Pound gained against it, however we could see a change in momentum or at least a slowdown as the week ends.
Both the Euro and the Cable have posted significant gains against the US Dollar recently on the back of disappointing reports coming out of the American domestic economy. Traders are looking at a string of weaker than expected performance from the US and have begun to doubt whether the Fed will pull the trigger and raise rates in September, hence the decline of the US currency.
However time might have come for these rallies to slow down a bit, even if it is only temporary, as both European currency pairs are in close proximity of key resistance levels. The Euro traded to 1.1450 yesterday and we know how important the 1.1500 area is as the Single currency slowed down its ascend. With the Euro battling to remain above the 1.1400 level this morning we believe that a retracement lower or at least a consolidation seems more likely during this last trading session of the week.
Similar is our analysis for the Cable that hit 1.5800 during the past 24 hours with the UK currency having run a more than impressive rally against the Dollar. The surprisingly easy win for the Tories in the General Election has allowed the Pound to move higher as investors looked to back the currency ahead of more years under the same government.
However, from a technical standpoint the 1.5800 level is a critical resistance area and we are not surprised to see that the Cable rejected it after its first approach. We think it will be tough for the currency to overcome this barrier at this time, there’s little in terms of expected news, developments or reports to spur further gains. Our analysis points towards a step back from the Cable and it will be interesting to see whether the currency will remain above the 1.5700 area.
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