Currency markets have assumed a waiting stance over the past few days and it seems that this week acts as a consolidation period for the major FX pairs. Market participants had to reposition themselves during the previous week and limit their exposure to the US Dollar when the Fed cut their inflation expectations and most likely ruled out a June rate hike so this week acts as a restructuring phase. We've seen limited price action since Monday and in reality the market needs a new spark to attract new interest.
Yesterday the main theme was more consolidation and range trading in the major FX instruments that we monitor each day. Both the Euro and the Cable are waiting for the next piece of news that will excite investors and drive them back into the market in force. We have mentioned in our previous reports that our outlook especially for the Euro remains bearish in the medium term but on the short term we could see further gains for the single currency.
Going into more detail, the Euro has been trading between the 1.0900 and 1.1000 levels since the beginning of the week and it has remained in this range waiting for a fresh catalyst. Yesterday's IFO Survey offered support to the Single currency and the question now is whether the Euro could find enough momentum to break above the 1.1000 barrier.
In our opinion for a sustainable break to occur a spark is needed that will drive investors to back the Euro to go higher. However we see little chance of any important news until the week runs out so we could be looking at a sustained consolidation for a couple more days.
The Cable is on a similar outlook trading either side of the 1.4900 handle for the past few days. Investors on the British currency have to balance out the Pound's strength against the recently weakened Dollar and we believe we could also see more gains for the Sterling in the short term. Today the release of the Retail Sales report from the UK could be the kind of catalyst that could excite traders and a strong reading might drive the Cable above the 1.5000 barrier.Economic Calendar
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.