General market theme
The US Retail Sales was the event traders were expecting eagerly during the past week, and indeed on Friday the US consumer report was keenly monitored in order to assess the dollar’s outlook.
We have warned our audience that the report might miss its target and print lower, and it seems that we were right as the actual figures hinted on a weakness in the consumer demand in the States, suggesting that the dollar could take a hit from it.
However even though the dollar’s initial reaction was a dip lower, the US currency reversed its flows almost immediately and ended the day almost unchanged. This hints on further dollar strength as the month goes on, given that the Fed is the only major central bank still considering higher rates. Though it is a far-fetched possibility at this time, compared to the easing prospects of the rest of the central banks it supports demand for the US currency.
Price action highlights
The euro spiked higher when the US Retail Sales report hit the wires and the initial reaction took the rate above the 1.1200 level, but only for a brief period of time. The reversal that followed dragged the Single currency back around the 1.1150 area where it spent the rest of the day.
This week the release of the ZEW Survey and other EU-related reports will dictate price action, but as we mentioned above we should see further dollar strength leading into the September Fed meeting. Even though higher rates look like a distant possibility, the dollar still looks more attractive than the rest of the currencies at this time.
The cable confirmed its bearish bias on Friday as the weak Retail Sales report sent the pound above the 1.3000 level only for a few moments before the rate dropped below this key figure again. The actual reaction from the pound hints on how bearish traders are against the UK currency, which ended the day just above the 1.2900 area.
The pound is oversold strongly and that might be the only factor allowing to hover to such levels, as its bias is pointing lower and we could see further losses going forward.
Focus of the day
At the beginning of the week the economic calendar is empty of any important news or reports, so we could expect limited price action today. The only noteworthy piece of news today is the US Housing Market index, but we should not expect any reaction from the dollar to this report. It will be far more interesting to see how the US currency will trade post-Retail Sales and whether it will confirm its bullish bias going into the fresh week.
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