General market theme
On Friday everyone’s attention was focused on the release of the Non-Farm Payrolls report as investors needed confirmation on the bearish views expressed by Janet Yellen earlier in the week. The report was expected to print in a steady manner and confirm that the domestic economy in the US is indeed faring well but not at a degree that would guarantee further interest rate hikes at this time. The labor market report confirmed expectation and the reading in all components came in approximately as expected so our bias for the dollar remains conservatively bearish for the medium term.
Price action highlights
The euro enjoyed a bit of volatility at the end of the week on the back of the NFP report and even though the initial reaction was a spike higher the single currency pulled back to test the 1.1330 area before again pushing higher to reach the 1.1400 level. As we mentioned above the sentiment in the dollar is bearish but at the same time we should note that the EUR/USD currency pair looks a bit overstretched and we could see a consolidation or even a correction lower for a brief time before the euro picks up pace towards higher levels. The next target above the 1.1400 area lies around the 1.1500 should the dollar remain weak.
Unlike the euro the cable wasn’t able to benefit from the dollar weakness on the back of the labor market report on Friday and instead took a turn to the downside. Earlier in the day the release of the Manufacturing PMI from the UK weighed down on the pound that lost the 1.4300 support and pushed towards the 1.4200 level before the day was out. The sentiment in the cable is bearish and further weakness from the UK currency will add to the pressure and the next targets lie around the 1.4100 and eventually 1.4050 levels.
Focus of the day
Today the economic calendar contains only a couple of second tier reports from around the globe, staring with the release of the Construction PMI report from the UK that is expected to print lower and add more pressure on the cable. The Eurozone unemployment rate and the US Durable Goods Orders are the other news events of the day and we don’t expect too much volatility in the back of these reports so traders will look to take their cue from the current biases in the major instruments we monitor every day.
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