More volatility and more attractive price action was the theme of the day yesterday in the major instruments we monitor in our daily report. There was a divergence of price action across the different instruments as some of them continued on the same path since the beginning of the week while others showed signs of a potential reversal. Nevertheless this week has offered us far more opportunities and challenges than the previous one and we still have the US jobs report ahead of us.
Talking about divergence in the price action of the major instruments, we are referring to the different path the Euro and the Cable took over the past 24 hours. Even though both currency pairs have to do with the US Dollar that had yet another disappointing report, namely the ISM Non-Manufacturing levels, they traded in a different way yesterday. It goes without saying that when the disappointing ISM figures were released both of them jumped higher but for the Cable it was already late for fresh highs.
Being more specific in our analysis, the Euro printed new highs yesterday after the release of the ISM levels in the US and the Single currency broke above the 1.1200 barrier to trade to 1.1260. It is important to note that earlier in the day the Euro received some support from the better than expected Retail Sales and PMI reports but the big push came when the discouraging US-related report hit the wires.
Now this means two things and it’s important to understand them both: first that the gains of the currency should be attributed mostly to Dollar’s weakness rather than Euro’s strength and secondly that since that is the case this weakness can either be enhanced or reversed from the upcoming US jobs report. Anyway, over the next 24 hours though we expect limited volatility as the day doesn’t offer much in terms of expected developments.
The Cable had a bad beginning of the day yesterday when the Services PMI report printed far worse than expected and that initially drove the currency lower to test the 1.5270 support floor. Luckily for the UK currency though the weaker than expected ISM levels dragged the Cable higher to end the day around the 1.5330 area.
Now for the day ahead we shouldn’t expect any excess volatility, the BoE will release their Rate Decision but with no accompanying statement this is considered to be a non-event and we would have to wait until tomorrow’s NFP release to have fresh information to trade on. More on that on our next report tomorrow morning.
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