Major money markets remain volatile ahead the upcoming host of events

On Friday the major instruments we monitor in this report remained pretty much active and we’ve had interesting swings in all markets which is not usual for the last day of the week. The previous week has been a rather volatile one with changes in direction and momentum in all markets and as we’re entering this new one we expect volatility to remain elevated.

There is a host of significant events and reports scheduled for release this week and that guarantees further volatility and price action across the board. Apart from the market-moving Non-Farm Payrolls report from the US on Friday we will have to tackle the release of PMI levels from Europe, the UK and the US, the BoE meeting on monetary policy and other important events.

The theme in the markets during the last few days has been a weakness from the US Dollar that allowed the likes of the Euro and the Pound to gain on the back of it and post gains on the short term. The Pound has been rather bullish but the Euro has found the opportunity to breathe a little easier as well but we’re doubtful on whether this trend can continue on a more medium-term outlook.

Looking ahead this week we have to separate Euro’s and Cable’s outlooks as they might differ a lot. The Single European currency is trading just above the 1.1000 barrier this morning having rallied above this level on Friday but the momentum behind this move seems rather weak. Today the release of some tier-3 reports from the Euro area is not likely to affect the currency but later in the day the ISM Manufacturing report from the US might provide some friction.

The manufacturing levels are expected to print lower and that could extend Dollar’s weakness especially since traders are already doubting whether the Fed will raise rates this year and that in turn could extend Euro’s rally to the upside. However we would rather be cautious at this time since Euro’s own outlook is not looking that good so any gains might be short-lived.

The Cable on the other hand has been far more vocal last week and its reaction to the recent Dollar weakness was an impressive rally higher. Just on Friday the currency rallied about 150 pips to trade as high as 1.5450 after exiting a descending trend that had brought the rate down to 1.5240 at some point. It will be very interesting to see whether the Pound will be able to hold on these gains, the expected PMI reports are predicted to print at encouraging levels so even though the currency is overbought at this point the short-term bias remains bullish.