General market theme
A strong week last week for the US dollar over the past few days that has gained across the board against almost all of its counterparts even though the economic calendar didn’t hold any fresh news from across the Atlantic. We must consider that the US currency is gaining against its major peers due to their weakness as Europe and the UK are feeling the effects of the Brexit decision and the consecutive terrorist attacks in various cities. The sentiment remains bearish and even though we don’t expect any action from the ECB at this point this bearish bias takes a toll on the single currency while the pound took a hit on Friday as the fresh PMI readings highlighted the early signs of weakness on the back of the decision to leave the EU.
Price action highlights
The euro disregarded the better than expected PMI readings from the eurozone on Friday and instead pushed lower to break below the 1.1000 support area and reach as low as 1.0950 on the back of a number of incidents linked with terrorists in the euro area. The sentiment is bearish as we mentioned above but the ECB seems reluctant to ease further at this time and given the lack of any signs of deterioration we could see a rebound on the euro moving forward. This is not to mean that we expect any changes in outlook for the single currency but rather that fresh lows might be hard to come at this point at least.
The cable came under fresh pressure on Friday and dropped to its recent lows as the fresh PMI readings highlighted the weakness in the Manufacturing and Services sectors in the UK after the decision to leave the EU. The reports printed in a very bearish manner sending the pound below the 1.3100 level briefly and even though the currency recovered the prospect of fresh lows remains. The BoE is expected to lower rates urgently next month so we should see the pound dropping even lower but for the time being we need to take a patient approach.
Focus of the day
The only noteworthy piece of news in our calendar today is the release of the IFO Survey from Germany that is expected to show further weakness in the business sentiment in the euro area. Other than that traders will be looking towards this week’s FOMC meeting where even though we expect no rate changes the accompanying statement might provide fresh support to the dollar as the rest of the global economies are more focused on lower their interest rates policies.
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