Dollar comes back strong against its peers as fundamentals point the way

The Dollar was back in action on Friday after several days that the US currency has been on the backseat and posted losses against the other major currencies. We have explained in our recent reports why we thought that the Dollar should have been trading higher against the other currencies and we mentioned that it is our belief that the price action will catch up with the fundamental developments very soon and on Friday part of that catching up took place.

The US currency that has seen a short squeeze last week due the oversold status of the Dollar against the likes of the Euro and the Pound saw fresh momentum higher during the last 24 hours of trading and since the Asian markets opened last night that momentum carried on. The Dollar has been gaining across the board and it is also interesting to mention that this price action could be weighing down on the global stock markets. Global indices have formed peak formations and from here a reversal lower would not surprise us.

This week we expect further gains for the Dollar as traders realize that nothing has changed on a fundamental level and the Dollar correction was merely based on technical rather than anything else. The Euro and the Pound remain on a bearish bias and last week we had further confirmation on that, ECB Draghi was clear on his remarks on Friday when he hinted on further easing next month and the UK Public Finances report printed worse than expected.

Taking a look at the price action at the beginning of the week, the Euro has broken lower that is previous lows in overnight trading and this morning is testing the strength of the 1.0600 support area. The Euro that has been trading at 1.0750 last Thursday caught up with Dollar’s renewed strength as traders found the opportunity to sell the Single currency higher against the buck and now the next support area lies at the 1.0500 level.

Today the release of the Markit PMI figures from Germany and the Eurozone will dictate the price action and analysts expect the reports to print steady while the risk is always on the downside. Truth be told the Euro is slightly oversold at this point after the strong rally since Thursday afternoon so we could see some consolidation for the time being but the bias remains bearish and every chance the Dollar gets it will pressure the currency lower.

The Cable illustrates a similar price action with the Euro with strong losses over the past couple of days, the UK currency has lost the 1.5200 area on Friday and overnight trading has brought the Pound down to the 1.5150 area where we find it this morning. The calendar is empty for the Pound today but the sentiment remains bearish and the medium-term remains the 1.5000 area.