Currency markets continued trading in calm and non-volatile manner for a second day this week and yesterday’s price action was pretty much what we expected. We had little to no surprises over the past 24 hours in terms of reports scheduled for release or other developments hence the major instruments we monitor every day traded in a pretty predictable manner.
The main focus of the markets especially in the morning hours was on Greece’s debt repayment to the IMF which was completed on schedule, even though the country had to tap its emergency funds. The fact that Greece was able to meet its obligations lifted the Euro but the issue still remains as the country has available funds just for the next 2 weeks as their Finance Minister revealed so we expect uncertainty to be centre-stage for the weeks to come.
Today though traders’ attention will be on the release of the Inflation Report from the Bank of England and the Retail Sales figures from the US. Both events are highly anticipated and could cause quite a bit of volatility in the markets. Traders will look to take advantage of the aftermath of the reports as both of them could be important medium-term turning points for their respective currencies.
Taking a look at the technical outlook of the major currencies, we find the Euro trading above the 1.1200 area today after yesterday’s short-lived rally on the back of the Greek debt repayment. We believe that Euro’s short-term outlook hinges on the release of the Retail Sales report from the US. The report is expected to show some mild weakness in consumer spending last month and this could allow the Euro to extend its rally towards the 1.1300 barrier.
The Cable extended its gains yesterday after the stronger than expected Industrial and Manufacturing Production reports were released and the currency is trading above the 1.5650 area this morning. As we mentioned above the currency’s outlook hinges on the release of the Inflation Report from the BoE and here all bets are off.
It will be interesting to see whether the British policymakers will opt to stress on the longer term outlook of the domestic economy, a development that could allow the Pound to rally even further against the Dollar.
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