Currency markets continue to give traders that are not on holiday a hard time and last week was full with price action that was in many occasions difficult to comprehend. The most interesting development in the major FX pairs’ universe has been the unprecedented rise of the Euro against the Dollar during a time that fundamental drivers are not easy to understand.
Especially since we’ve seen no improvements in the domestic economies of Europe and in a time that the Fed is thought to be close to pulling the trigger and rising their interest rates traders are baffled by the strong trend that has brought the Single currency to 1.1500. However we need to understand that since the ECB has offered an extremely accommodative policy for the Euro with low and even negative rates the Single currency has been used globally as a funding currency for investors.
So given the recent sell-off in the major US and European stock markets fueled by Fed’s intended rate hike and the difficult times in Asian markets the Euro has received massive in-flows as investors liquidated their positions in such securities. Taking into consideration the low levels of volume during the August season one can understand why we’re seeing this overextended rally.
On Friday the Euro continued on its course higher and during early Asian trading hours the Single currency has reached the 1.1500 barrier. The rally has been overextended and the Euro is so massively overbought that it’s difficult to call a peak and start talking about a reversal or even a correction. The calendar today is more or less empty so the best choice at this time would be to remain neutral and allow the Euro to burn any gas left in the tank.
On the other hand the Cable continued trading within its usual sideways range not finding enough support to overcome the 1.5700 barrier that has capped any attempts for a breakout higher during the recent weeks. With the UK economy showing positive but not exciting signs of progress the Pound remains bid but not in such a way that would allow it to appreciate against the Dollar. Again we need to remain patient as this sideways movement has produced lots of fake breaks these past couple of weeks while traders are nervous and prefer not to over-commit.
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