General market theme
Mixed performances from the major instruments yesterday with the dollar remaining under pressure, but the gains of the rest of the other instruments were limited. While investors remain skeptical about the Fed raising rates at all this year the dollar offers better long-term outlook, hence it is still receiving some support—especially at this time when people are on their holidays and trading volume is reduced.
Traditionally August is a good month for the dollar, but it seems that this year the US currency is having a hard time. Until fresh reports from the US start coming in to suggest that robust performances are to demand a higher rate policy, the buck will remain hanging in the balance.
Price action highlights
The euro edged higher yesterday above the 1.1350 area, but it corrected to the downside overnight and this morning the rate is just shy of this level. The single currency has benefited from dollar’s weakness over the past few days, but whether it can sustain these gains remains to be seen, especially now that the momentum higher looks to be diminishing.
At any case the short-term support is around the 1.1300 area, and as long as the euro holds above that we have no indications to suggest a reversal at this time.
The cable rallied higher yesterday on the back of the stronger-than-expected Retail Sales report. The report revealed that consumer demand in the UK remains strong on the back of the Brexit decision, raising the outlook of the pound slightly since there were fears that consumers would have been overly passive after the shock of the referendum.
We’re still a long way to think that the pound will be alright; the uncertainty surrounding the future will keep the UK currency’s outlook in doubt, but nevertheless this was good news from the UK.
Focus of the day
The day ahead doesn’t offer anything important in terms of fresh news or reports. Apart from the UK Public Finances figures pending for release early in the morning, the rest of the day seems empty of anything of significance. We expect limited price action on the back of this lack of excitement, and being an August Friday many investors will be at their holiday destination or on their way there.
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