Volatility was significantly higher yesterday as traders were keen to find out more about the domestic US economy and at the same time Fed policymakers’ thoughts on the progress being made. As such the release of 2 different reports in the same day guaranteed that there would be price action in the major instruments and indeed there was.
What was interesting though was the divergence between the effects of the two reports as the former one was far more bullish than the later causing more volatility and nervousness among traders. Being more specific, the release of the inflation levels in the US early in the day printed in a positive manner showing that there is a steady growth in prices’ levels and that offered support to the Dollar that started gaining ground against its peers.
However later in the day the release of the minutes from the last Fed meeting on interest rate policy revealed a slight less bullish tone among the members of the committee and that has pushed traders’ expectations for a September rate hike further away. As a result the Dollar gave back most if not all of its earlier gains ending the day flat versus most of the other currencies.
Today the most market-moving event will be the UK Retail Sales and after yesterday’s price action in the Cable it will be interesting to see whether the currency pair will finally be able to break above its current resistance and gain more ground towards the upside. Yesterday the Cable attempted to break below the 1.5650 support area when the bullish inflation data from the US came out but eventually this level held strong. When the Fed minutes were released the Cable rallied to the 1.5700 resistance again so it will be very important to see whether a bullish Retail Sales report is enough to finally drive the Pound above this key resistance area against the Dollar.
The Euro had a similar performance over the past 24 hours as the first part of the day the Euro retested its previous lows but as soon as the Fed minutes came out the currency pair exploded higher making its way above the 1.1100 area. We wouldn’t expect any excess volatility today on the Single currency today though as the calendar only holds the Initial Jobless Claims report that can affect the Dollar a bit so the most likely scenario would be a further continuation of the move towards Euro’s previous highs around the 1.1200 area.
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