US Dollar’s weakness continued being the focus of the currency markets over the past 24 hours and with trading volume reduced due to the summer period the extent of this effect has been a bit exaggerated in our opinion. After the mixed results of the NFP report last Friday traders have been repositioning their portfolios reducing their pro-Dollar positions leading the US currency to lower levels across the board with the Euro and the Pound benefiting greatly from this development.
However we would like to note here that it is our opinion that the current price action in terms of the Dollar weakness is far too overstated and that is down to two reasons: first, traders have been over-reacting to the mixed US jobs report that was not that bad by any measure and secondly the low volume of the markets during this period is magnifying any price action swings.
We want to mention those things since it is our assessment that the outlook for the US Dollar has not changed, a September rate hike is still on the table, even though it’s not the most likely scenario. This is meant to mean that we expect the Dollar to reverse at some point and start clawing back its recent losses and today’s US Retail Sales report might be a good spark. Analysts are expecting a robust performance from the consumer market over the past 30 days so we could see a change in flows.
Taking a look at the technical outlook of the majors, the Euro extended its gains to the 1.1200 barrier yesterday partly due to the weakened Dollar and partly due to the good news from Greece regarding its progress in the negotiations for a new loan deal. Nevertheless though the Single currency corrected lower overnight and this morning is trading around the 1.1150 area. Traders’ focus will be on the Retail Sales report from the US that could trigger a deeper correction in the Euro should it print as strong as expected, the pivot level lies around the 1.1100 area and next support is at 1.1000.
Cable was on focus yesterday as the release of the employment report in the UK was closely monitored by traders globally. The report printed worse than expected as the weekly earnings component showed a correction to the downside, however the UK currency managed to climb higher for the day as the lagging labour market means that interest rates will remain fixed for a longer period which benefits the Pound. The US Retail Sales report will take its toll on the Cable today and should it print strong as expected then a correction lower might be the next step.
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