Dollar picks up gains across the board ahead of tomorrow's Retail Sales

The Dollar was the best performer in the currency markets yesterday with the US currency gaining across the board on the back of the absence of any fresh news and the bearish Production reports from the UK. The gains were not anything too exciting and apart from the Cable that reacted in a volatile manner to the release of the Production figures the price action was relatively smooth as traders are focusing on tomorrow’s US Retail Sales report to find out more about the prospects of the US domestic economy.

The focus of the day yesterday was the Pound and the release of the Industrial and Manufacturing Production reports and the surprise came from the former as it printed significantly lower. This is another piece of news that adds pressure to the UK currency that printed another fresh 5-year low and limits any outlook of a higher interest rate policy from the BoE at least during the first half of the year.

As we mentioned above everyone’s focus now turns to the release of the Retail Sales report from the US and all bets are off here as the absence of any wage growth in the States could translate to less consumer demand. The Dollar has been under pressure in recent weeks as the data coming out of the US were mixed and that had put the prospect of more rate hikes in 2016 in doubt. The strong NFP report – even with no wage growth – brightened things up and if the Retail Sales tomorrow print in a positive manner we should see more gains for the Dollar.

The price action in the markets was relatively smooth and especially the Euro remained within its current trading range of 1.0950 to 1.0800. Yesterday the Single currency tested the 1.0800 support area and the lack of any excess momentum didn’t allow the Euro to break lower. We might need to wait until tomorrow’s Retail Sales report for the Euro to pick up some pace and if the drop continues then the medium-term support basis of 1.0700 will come into focus, otherwise a reversal to the upside will drive the rate towards its recent highs of 1.0950-70.

The Cable came under considerable pressure yesterday when the Industrial Production levels printed lower than expected. The UK currency had recovered to 1.4600 prior to the release on Monday but the momentum lower generated by the miss in the IP report sent the Cable to a fresh 5-year low at 1.4350. The outlook for the Pound remains bearish and if the US Dollar picks up any pace then we should be in for more losses while any correction to the upside needs to overcome the 1.4500 resistance area in order for us to consider changing our outlook for the UK currency.