General market theme
As we mentioned in our analysis yesterday the focus has turned to Europe over the past 24 hours as the release of important reports from the Eurozone and the UK attracted traders’ interest. The volatility remained elevated in the major FX pairs as the ZEW Survey and the UK inflation levels were released yesterday giving traders fresh data to digest. Today however the focus turns back to the US as the release of the Fed minutes from their latest meeting on monetary policy are expected to confirm the dollar’s weakness and drive the US currency lower once again.
Price action highlights
The euro is showing increased resilience recently and even though the single currency has been on the downside for a few days yesterday it seems that it has found some much needed support. The Eurozone ZEW Survey printed in a bearish manner revealing that the turmoil in the financial markets and the drop in oil prices have taken a toll on the business sector’s confidence. However the euro remained afloat and managed to stay above the 1.1100 area and this morning is testing the 1.1200 resistance. If the Fed minutes reveal concerns about the US economy’s outlook then the euro could look higher again targeting the 1.1300 area.
Contrary to the euro, the pound was deeply in the red yesterday on the back of the inflation data. The Consumer Price Index printed in a bearish manner and dragged the UK currency to fresh lows as investors realize that any chance for a higher rate policy within 2016 is going away. The cable dropped below the 1.4300 level and today we need to be extra careful and see whether any dollar weakness will allow for a correction as earlier in the day the release of the UK employment data can cause excess volatility and early price action.
Focus of the day
Obviously the most important event of the day is the release of the Fed minutes from their meeting on monetary policy and we explained above what the stakes are. However earlier in the morning the UK employment report will also be released and much attention will be paid to the wage growth component, if it prints lower than expected then the pound will most likely come under more pressure.
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