Can the UK employment report help the Pound recover even further today?

Price action in the currency market has been limited over the past 24 hours as there has been little to no developments to inspire traders to take action. The general theme remains the surge of the Dollar against the other majors but the empty economic calendar has allowed the likes of the Euro and the Pound to correct a bit to the upside since the beginning of the week.

However we should not forget that the bias for both European currencies remains bearish, the Euro is under pressure from ECB’s intentions to further ease if needed to spark some progress in the Euro area and the BoE hinted recently that they are in no hurry to raise rates thus limiting the Pound’s potential. As such we should be in the lookout for opportunities to sell both currencies against the Dollar.

Today we should expect more price action especially in the Cable as the pending release of the employment report is bound to get a reaction from traders. The domestic economy has been faring well in recent weeks so there is the chance that the Pound will get a further correction to the upside but at the same time we should be prepared for a bearish reading as well. Last month the wages’ growth component was the one that disappointed traders and if a similar development takes place this month the Pound will lose ground once again.

The Cable has come off its 1.5020 lows printed last Friday and during the past couple of days has corrected up to the 1.5200 area and this morning is trading around the 1.5150 level. The UK currency is sensitive to the employment sector report and all bets are off at this time. The progress in the domestic economy could translate into a strong labor report but as we mentioned above we should not exclude the possibility of a surprise.

Should the report print in a bullish manner then we should expect the Pound to establish a base above the 1.5200 level but the really interesting trade would be on the back of a bearish surprise. In that case the fragile confidence in the Pound could go away very quickly and the 1.5000 floor will be tested.

The Euro remains fragile as well and even though it has corrected higher yesterday that didn’t happen before printing a new low. Traders are mindful of the divergence in monetary policy between the ECB and the Fed and are looking for opportunities to sell the Single currency. With the Euro trading around the 1.0730 area this morning another round of selling pressures should drive the currency to the 1.0600 level should yesterday’s lows get penetrated.