More weakness from the US Dollar, more gains for the rest of the majors was once again the theme of the markets during the past 24 hours. Fresh reports from the US revealed continued slack in the domestic economy and comments from Fed policymakers weighed down on the currency and allowed the recent rally in the Euro and Cable to extend its gains.
During the whole week we’ve seen an interesting correction in most major pairs against the US Dollar and we have explained in our recent reports that this was more or less expected. The number of short positions had been in extreme levels across all Dollar counterparties and some profit-taking would have been natural. This paired with a number of reports that printed lower than expected in the main driver behind the decline of the Dollar since the fundamentals haven’t really changed.
The Euro made it all the way to the 1.0800 barrier yesterday but again we have to note that the momentum behind the move has been diminishing. It’s not clear yet whether a reversal to the downside again is the next move but we believe that with the sentiment in the Euro-zone remaining fundamentally bearish a reversal should be expected at some point. The important level of support lies at the 1.0700 area and as long as this is not threatened the Euro can remain afloat for the time being.
The Cable reached its previous heights yesterday as it hit the 1.4970 mark lifted by the current Dollar weakness. It has been an impressive rally from the UK currency that remains unfazed by the uncertainty surrounding the domestic political agenda with the upcoming elections only a couple of weeks away.
The focus for the day ahead will be on the Cable as the release of the employment data has the potential to keep volatility at high levels. An improvement in the labour market data would allow the Cable to reach and possibly break above the key 1.5000 barrier but we should also be conscious of a potentially weaker report that could send the currency back lower towards the 1.4800 area.
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