Further weakness expected from the Euro and the Cable

An easy start for the currency markets this week with limited volatility in the major instruments we monitor every day. The day was empty of any fresh news or developments hence the major currency pairs consolidated near their recent lows ahead of the upcoming reports scheduled for release this week. The main drive in the markets remains the rise of the US Dollar and we have little reason to doubt that this will continue to be the case.

With important support levels broken in both the Euro and the Cable last week the downwards bias in the two European currency pairs has been confirmed. Even though we could expect a moderate correction higher in the short-term, which is not guaranteed either, the sentiment remains bearish for different reasons. The Euro remains weak on the back of the QE programme from the ECB and while Greece continues to pose a risk on the stability of the area the Single currency looks bearish. The Cable on the other hand has to face the uncertainty surrounding the upcoming elections hence we see increased chance for further losses.

During the first 24 hours of trading this week the Euro slightly came off its 1.0500 lows to test the 1.0600 resistance but there is little incentive for market participants to back any further moves higher. The focus now turns to the ECB Rate Decision and press conference tomorrow but we expect no change in the central bank’s rhetoric. Today the Euro will most likely trade on the back of the Retail Sales report figures from the US and expectations are set for a solid released that could extend Euro’s losses towards and below the 1.0500 area.

The Cable on the other hand managed to stage a small correction yesterday and rallied to the 1.4700 resistance but with little follow-through. As we mentioned above the sentiment remains weak and now traders will focus on the release of the inflation levels scheduled for today. Another low inflation reading will confirm BoE’s intention to leave rates at their accommodative levels for an extended period of time and along with a probably solid Retail Sales report from the US could send the Cable tumbling towards 1.4600 again.

The same combination of expected results should bode well for the FTSE 100 though that has broken above its recent highs and traded to the 7,100 points area. The recent rally might look overextended and indeed it might be but we could see further gains at least for the short-term on the London index. Should the FTSE break above its fresh highs then the next area of interest lies around the 7,200 points.