The week started with a sudden reversal for the major currency pairs that saw most, if not all, of their Friday gains against the US Dollar going away as traders are slowly coming back to their desks after the Easter holiday. Both the Euro and the Cable retreated from their post-NFP gains and are trading considerably lower this morning.
We had no fresh news over the past 24 hours so the reason behind this correction has to do with two things: first, the thin liquidity on Easter Monday allowed for some profit-taking after the gains on Friday but at the same time traders looked at the US jobs report with a fresh look.
It is true that the numbers of jobs added in the US economy last month missed its mark by a lot but could this alter Fed’s plans to hike rates sometime soon? We think that the answer at this time is no and that it would take a significant change in the fundamentals to force them to deviate from their initial schedule.
The days ahead of us will confirm whether traders will continue to back the US Dollar looking past the single month decline in the labour market. From a technical point of view it’s important to note that even though the report missed its mark both the Euro and the Cable failed to break higher from their broader trading ranges. This is an indication that market participants are hesitating to invest heavily in the European currencies.
The Euro traded just shy of the 1.0900 support area yesterday as traders are looking towards the Greek debt issue. Recent news made word of Greece being able to meet their upcoming payment to the IMF but still the Single currency will find it difficult to muster enough support to overcome the 1.1000 barrier. If Dollar picks up momentum this week we could see a further retreat towards the 1.0800 area.
A similar conclusion can be drawn for the Cable that declined below the 1.4900 area over the past 24 hours. With the UK economy doing well but not to a point that would attract fresh interest and the upcoming elections just a month away the bias in the Cable looks bearish. Recent polls showed that it might be difficult for any party to clearly win the elections and this is adding to the risk for the UK currency. As mentioned above any uptick in the demand for Dollars should drag the Cable towards the 1.4800 area again.
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