Price action in the major currency pairs has been quite interesting over the past 24 hours as it kind of hints towards a change in momentum and possibly outlook over the short-to-medium term. During this week we’ve seen an extended anti-Dollar rally in the Euro and the Cable with both pairs enjoying solid gains against their US counterparty however this could change as we move forward.
Yesterday comments from ECB officials called for more action from the central bank on the issue of the stubbornly low inflation in the area and everyone’s mind went to an extension of their easing schedule. We know that should such a development take place or even become a real possibility the Euro will suffer and that was clearly reflected on the way the Single currency trader yesterday.
Coming off the 1.1500 highs the Euro dropped below the 1.1400 level which acts kind of the pivot point for the short-term outlook of the pair, bearish ECB commentary as we mentioned above drove the rate lower while at the same time the inflation levels report from the US printed better than expected. Should the Euro extend its losses on the basis that the outlook of the US Dollar is not as bad as the recent price action reflected then we could see a retreat towards the 1.1300 area.
On a similar mood with the Euro, the Cable has topped at the 1.5500 level and yesterday it corrected towards the 1.5400 area before retesting the 1.5500 highs. Things are going well for the domestic economy but with inflation in the US beating expectations the Cable could be vulnerable to a correction lower in the coming sessions.
The pivot point for the Cable at this point lies around the 1.5400 area and a downwards break from there could open up the 1.5300 area. We need to be cautious with the Cable though as the UK currency has a good fundamental backing especially after the latest round of employment data so any losses could be limited. Thus our focus should be on the short-term outlook of the currency as the broader outlook seems more mixed.
Today the focus will be on the Euro in the morning with the release of the inflation levels from the Eurozone that could confirm ECB’s concerns about the low price pressures and put the currency under pressure. Later in the day the release of the Industrial and Manufacturing Production reports from the US could trigger further correction for the Dollar if the levels print strong.
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