Yet another day of limited volatility yesterday as we’re only 2 days before Christmas and market participants seem content with their portfolios and avoided making any last minute adjustments. We expect this pace to continue next week as well as we come closer to the New Year’s Day and there’s a number of reasons why this year’s holiday season is extra quiet.
First of all the timing of the Fed decision to raise rates had driven investors to adjust their positions ahead of time since the decision was pretty much a done deal a few weeks before the actual meeting. This means that investors that wanted to take advantage of Dollar’s strength going into the new year have already done so and those who preferred to bank their profits from the strong Dollar rally earlier this year had the opportunity to do it.
At the same time though there is little movement in the market from traders that want to start the year strong and we’re seeing little trading action at this time. This clearly hints us on the fact that traders prefer to wait and see how the new year will kick off for the Dollar and the rest of the global currencies before loading their positions.
It is going to be a tricky period for investors as the global economy has quite a few interesting characteristics at this time: a higher Dollar interest rate, a divergence of policies between the Fed and ECB, extremely low oil prices and slow growth and inflation. All these factors keep traders on their toes as they remain skeptical on what to do volatility and price action remain subdued.
Yesterday the price action in the majors was quite mixed with diverging performances for the global currencies. The Euro was on the rise during the first half of the day extending its gains above the 1.0950 area but later in the day and overnight it declined slightly lower. This morning the Single currency is trading around the 1.0930 level testing the lower edges of its ascending channel while the pivot level lies at the 1.0900 area. While the Euro stays above it we could see a consolidation between 1.0900 and 1.0950 while a break below should clear the path for the 1.0800 lows.
The Cable was bearish throughout the day dropping from the 1.4900 area to test the 1.4800 support. Overnight though the UK currency managed to pick up a 50 pips correction but while it remains below the 1.4900 level the bias remains to the downside. We shouldn’t expect too much volatility today but there can be some opportunities for short-term trades with little commitment.
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