General market theme
Diverging performances from the majors over the past 24 hours of trading with the euro taking a turn for lower levels while the pound remained relatively afloat. The beginning of the week didn’t have many fresh news to offer and traders had little to trade on especially since the focus has moved away from the US dollar after last week’s mixed employment report.
As we have said a few times already this week traders are focused on the euro ahead of the ECB meeting and analysts make word for the several options that the central bank have at their disposal to weaken the single currency. Its performance will hinge on whether the ECB will fulfill or disappoint their expectations and given that the euro has become a funding currency for stock traders its price action will take a toll on the stock markets as well.
Price action highlights
The euro traded lower yesterday ahead of the upcoming ECB meeting as investors are bracing for a bearish bias and potentially new easing initiatives from the central bank. The recent rally of the euro on the back of the weakened dollar has reduced the efficiency of ECB’s previous easing actions hence they would want to make sure that their easing agenda meets its target and that bias is dragging the currency lower. The euro traded below the 1.1000 level but arrested its decline around the 1.0980 area ahead of the 1.0950 pivot level which we consider the important support for the time being.
The cable on the other hand was also in the red but with less momentum as the currency traded lower towards the 1.4200 level. BoE’s concerns about the potential of a Brexit didn’t do much to affect the currency that remains stubbornly robust but today’s industrial and manufacturing production reports could take its toll on the pound. Given the recent PMI reports we would expect further weakness from the pound hence a further correction towards the 1.4100 area could be the next step for the UK currency.
Focus of the day
Traders will look towards the pound today as the day is filled with important reports from the UK, the release of the industrial and manufacturing production reports will be closely monitored and we’re very interested to see how the resilient pound will react to these readings. Both reports are expected to print higher but given the recent PMI reading we could be in for a surprise. Later in the day the NIESR GDP estimate will also be released from the UK.
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