On Friday we made word about the slowdown in momentum on the recent rallies of the major European currencies and how this could turn into a reversal towards the other way this week. Indeed we have noticed that both the Euro and the Cable have found it difficult to extend their gains against the US Dollar and actually the UK currency retreated significantly lower.
After a couple of weeks where the not so exciting results from the US along with doubts over Fed’s tightening agenda have sent the Dollar lower it might be time for market participants to realise that little has changed. The reality is that any hopes that they had for a June rate hike were too bullish but that doesn’t mean that the US economy doesn’t justify a higher rate policy by the end of summer.
We believe that traders will soon realise that and will start building up their portfolios again ahead of this development. This week the focus will be on the UK elections, the European negotiations with Greece and ultimately on the Non-Farm Payrolls report on Friday.
With the race still too tight to call in the UK, the lack of any progress between Greece and its creditors and an expected bounce back on the jobs’ report from the US the sentiment might be changing towards the Dollar.
From a technical standpoint, the Euro came off its 1.1250 highs on Friday and tested the 1.1170 area where it found some temporary support. We might be in for another attempt for the Euro to break into higher ground but momentum has been slowing down and the most likely scenario is a further retreat in case the support at 1.1170 gives. The targets in such a case should be at the 1.1100 and 1.1000 levels.
Unlike the Euro, the Cable failed to remain afloat on Friday and declined as low as the 1.5100 area dropping more than 200 pips during the day. The decline in the Manufacturing PMI levels along with the slowdown of the momentum of the previous rally led the UK currency significantly lower and we could see even more losses as the week progresses.
The major support for the Cable lies around the 1.5000 figure and it wouldn’t be surprising to see the UK currency trading around that area by the end of the week.
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