During the first 24 hours of trading this week we saw limited volatility in the major instruments we monitor each day and this of course is only normal as the calendar on Monday was really light. What is important to discuss however is the change in the technical outlook of the major instruments, a change that was expected at the end of last week but to our surprise was abandoned mid-way.
We’re talking of course for the reaction of the Euro, the Cable and Gold against the US Dollar in light of these instruments having reached key resistance levels in their respective price action. Late last week we called for a correction in favour of the US currency on the back of this slowdown in momentum but on Friday the discouraging US reports sent the buck lower again.
However it seems that the situation has deeper fundamental and technical roots and the slowdown in the uptrends of these 3 instruments is now turning to a reversal towards lower levels. Over the past 24 hours we have seen the first signs of this reversal picking up some pace with the Euro and the Cable retreating lower and the technical and fundamental outlook for both pairs suggest further losses.
The Euro traded as low as 1.1300 yesterday and this morning the currency is trading just above this area. The momentum is pointing lower and if the German ZEW Survey prints lower later today as expected then we could see a further extension of this retreat. The next target for the Euro in case the sell-off intensifies should be found near the 1.1200 support floor.
Cable was also in the red yesterday without any particular fresh reason so we have to assume that traders believe that the UK currency is situated ahead of an important technical barrier and has troubles overcoming it. Furthermore, today the release of the UK inflation levels is expected to confirm the market’s fears for a stagnating low inflation in the UK which would push any rate hike hopes further into the future. Such a development wouldn’t of course bode well for the Cable and our target should be around the 1.5500 area.
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