General market theme
Over the past 24 hours price action in the currency markets remained on the same tune as before and the major instruments we monitor continued trading in the same direction we left them at. The focus was mainly in Europe and the release of a few tier-2 reports while later in the day the ISM reading from the US confirmed the positive bias for the dollar for yet another day. The US currency has been enjoying some very nice gains since the beginning of the month and leading up to Friday’s NFP report we could see even more momentum building up for the dollar.
Price action highlights
The euro spent the day trading sideways on either side of the 1.1500 level as there was a lack of any really important reports to drive the price action. The Eurozone Retail Sales printed slightly worse but this was offset by positive commentary from the ECB as the central bank made clear that they have no plans to act any further until September. Today’s price action is not expected to be any different than yesterday’s as the calendar doesn’t offer any events to provide the necessary friction so we believe we will see further consolidation ahead of tomorrow’s NFP report.
Unlike the euro the cable extended its losses yesterday when the Construction PMI report printed in a bearish manner confirming the contraction in the UK in the past month. The pound dropped to fresh lows below the 1.4500 level and even though it corrected higher overnight we could see further decline today. The release of the Services PMI report is the most important of all three and with the Manufacturing and Construction readings having printed lower expectations are set for yet another bearish printing that could send the cable lower once more.
Focus of the day
Today investors’ attention will be divided between the UK and the US as the Services PMI reading in the morning and the Initial Jobless Claims in the afternoon are the important events of the day. We expect limited reaction from the euro today while the pound might extend its decline on the back of the PMI reading. However we expect investors to remain cautious ahead of tomorrow’s NFP report.
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