Just when we thought that the US Dollar was about to get its mojo back another string of disappointing results killed Dollar traders’ hopes. On Friday we discussed the fact that the momentum in most major instruments was reversing as they had to face key resistance levels and that the US Dollar might find this as an opportunity to claim back some of its lost ground.
However what was missing was a trigger, something to spark some volatility in favour of the US currency. Unfortunately for the Dollar the release of the Industrial and Manufacturing Production levels and the Confidence levels from the University of Michigan had the exact opposite result. Both Production reports revealed another month of slowdown and the retreat in the Confidence index added fuel to fire and the Dollar crumbled against its peers again.
The Euro benefited from this and climbed back above the 1.1400 barrier on the back of the fresh disappointing US reports and this morning we find the currency trading around the 1.1440 area. It will be very interesting to see how the Single currency will trade this week, we called for a reduction of momentum last week and that the 1.1450 resistance level will be hard to break and we still believe it will take some serious effort to overcome this level. As long as the Euro remains above the 1.1400 figure it still has the chance to do so but any retreat below that would probably point towards a consolidation between 1.1300 and 1.1400.
More or less the same reaction from the Cable on Friday but with less volatility. The UK currency retested the 1.5800 resistance on the back of the bearish US reports but again found it hard to overcome it at this point. The sideways formation between 1.5700 and 1.5800 indicates that the Cable is consolidating for now and waiting for the next fundamental development to point it towards its next direction. The appropriate technical approach would be to wait for the breakout to happen and then trade the Cable in the direction of said breakout.
Over the next 24 hours we don’t expect any excess volatility as the week begins on a light calendar. There are no important reports scheduled for release and we expect no news from any geopolitical or financial fronts so this might translate into a calm and consolidative session. Further down the week however there will be many opportunities for trading starting tomorrow with the UK inflation levels and the ZEW Survey from Germany.
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