The beginning of the week brought added pressures to the major European currencies that retreated against the US Dollar yesterday. Over the past 24 hours we saw both the Euro and the Cable moving lower against their American counterparty even though the news flow didn't necessarily justify such a decline.
What we believe is weighing down on the European majors are a couple of things: first, with Greece's debt discussions again on the headlines investors understand that the risk in the Euro-zone stability hasn't gone away and the bias remains bearish. At the same time the recent drop in inflation in the UK is also adding pressures in the Cable that is battling to remain above the 1.4800 support area.
Adding to that traders' intention to rebuild their pro-Dollar positions that have been unwound the previous couple of weeks we can understand why there's a bearish sentiment in the market. As we move forward towards the Non-Farm Payrolls report on Friday it will be interesting to see whether investors will continue to build their positioning in favour of the US Dollar as analysts are expecting a possibly lower NFP reading this time around.
Regarding the technical outlook of the major currencies this morning, the Euro dropped below the 1.0800 support area overnight and is now in close proximity of the 1.0750 level. The momentum to the downside is not the strongest so we believe that the short-term outlook of the currency will be hinge on today's reports. The German Retail Sales, the Euro-zone inflation data and the US Consumer Confidence levels later in the day will take their toll on the Euro that is eyeing the 1.0700 area if the pressures intensify.
The Cable was also on the decline yesterday and breached the 1.4800 level even if the break lacked momentum and follow-through. The currency is hovering just short of this area this morning and the lack of follow-through might signal a correction higher today, the only piece of news from the UK is the Gross Domestic Product numbers that are usually not a market-mover. Looking to the upside the Cable could see the 1.4900 level as the target for a correction attempt.