General market theme
Limited trading action in the currency markets yesterday as there was a complete lack of any fresh news, developments or reports to spark investors’ interest. On the back of Friday’s strong dollar gains the US currency gave back some of the ground it had gained as investors looked to insulate their portfolios ahead of the upcoming Fed meeting that is considered a very important one.
We have said that the possibility of a rate hike at this time is extremely low, but we’re more focused on what the central bank will do looking ahead. Depending on how bullish they will be the dollar will either take flight or correct lower, affecting the price action of the major currency pairs, and stock indices will also take their cue from the Fed's plans.
Price action highlights
The euro corrected to the upside yesterday after the steep drop on Friday, and the currency rate has already started the day on the right foot as it is extending the rally to the upside. The euro ended the day around the 1.1175 area yesterday but this morning it’s already trading around the 1.1200 area. The 200-period moving average which is located around there is the first barrier, and if the euro wants to shoot for its previous highs it needs to overcome this resistance first.
The cable made an effort to correct yesterday and actually almost made it to the 1.3100 area, but fresh Brexit-related rumors pushed the pound lower. The possibility that the UK banks will lose their right to conduct business freely with the Eurozone’s single market is a very real threat when the UK formally leaves the EU, hence the bearish bias for the UK currency. Depending on how investors want to approach the Fed meeting, the cable can proceed higher towards the 1.3200 area or remain below the 1.3100 barrier waiting for fresh stimulus.
Focus of the day
Exactly like yesterday there’s nothing in the calendar to spark any trading actions this morning, and a couple of housing-related reports from the US in the afternoon will do little to affect the price action in the major instruments. We believe that investors will look to re-adjust their portfolios ahead of tomorrow’s Fed meeting and this will show us how bullish the market participants are over the central bank’s plans.
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