General market theme
The dollar and the pound dominated the price action in the currency markets yesterday with strong moves from both currencies as fresh news drove investors towards them. The New Homes Sales report from the US printed in a very bullish manner but more importantly fresh Fed comments supported the possibility of a rate hike sooner than the markets are expecting driving the dollar higher again as its previous rally had cooled off.
At the same time BoE Governor Carney’s remarks on the possibility of a Brexit helped the pound recover against its peers and mainly versus the US dollar. The Governor went to great lengths to inject more confidence among investors ahead of the possibility of a British exit from the EU making clear that the BoE will ensure the normal operation of the market at any case.
Price action highlights
The euro traded lower again yesterday as the recent dollar rally picked up pace once again and the ZEW Survey figures printed in a mixed manner. The single currency is trading around the 1.1150 area this morning having lost the 1.1200 support yesterday and today the release of the IFO levels will also be key to the price action. The bias is to the downside without any doubt but with the euro oversold the decline might struggle to go on so we need to be cautious on whether to join the downtrend or not.
The cable pushed higher over the past 24 hours on the back of confident remarks from BoE officials and the rally took the pound all the way above the 1.4600 level once more almost cancelling last week’s decline from the same area. It goes without saying that the pound will remain volatile ahead of the upcoming EU referendum and to decide which way it will go next is like trying to read the cards hence caution and patience are advised going forward.
Focus of the day
The release of the IFO figures from the Euro area will attract investors’ attention in the morning while the Services PMI levels from the US will also play a role in today’s price action and also further shape the US dollar’s outlook ahead of the upcoming Fed meeting. Other than that we always need to stay vigilant for fresh Brexit-related developments or news.
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