General market theme
Volatility in the financial markets remained elevated over the past 24 hours, and the usual changes in direction were once again the main theme of the major currency pairs’ price action. During the past few days we’ve seen a bearish rally for the European majors, the euro and the pound that is, on the back of the upcoming Brexit referendum and the very real possibility that Britain will exit the European Union.
Yesterday however, what surprised us was a pause on that rally and an attempt to correct to the upside around midday, without much of a reason to start with. A couple of hours later the release of the US Services PMI level that printed lower would have been reason enough to justify this pause, but that mere fact that the price direction changed hours earlier could hint on traders’ lack of confidence on the dollar regardless of better or worse reports.
Price action highlights
Continuing on what we discussed above, the euro was on a rollercoaster ride yesterday, starting the day in the red and breaking once again below the 1.1000 support area - but the decline didn’t last long. Around the 1.0950 area, buyers surfaced and drove the euro back around the 1.1050 area, hinting that there’s limited confidence on whether the euro can trade below 1.1000 for the time being. We need to remain vigilant as there’s no easy way to assess what’s next, as both the euro and the dollar are going through a period of continued weakness.
The pound was able to recover yesterday but only after it printed another fresh low just below the 1.3900 level. Fears of a potential Brexit are driving investors and corporations to protect themselves against such an eventuality by limiting their exposure on the currency or by hedging their bets. While the situation remains fluid and the result undecided, the pound will feel the pressure and fresh losses could always be in the cards.
Focus of the day
There are a few important reports pending for release today and we could see more price action on the back of them. The release of the UK Gross Domestic Product levels early in the morning will be the first, but we doubt it can do anything to change the bearish bias of the currency. The euro will face the release of the inflation levels soon after that, and with a bearish reading expected we could see more losses. Later in the day analysts expect a pickup in the US Durable Goods Orders, which is positive for the dollar.
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