Euro and Pound under pressure as the focus shifts to the US Services PMI

General market theme
Diverging performances among the majors over the past 24 hours with limited volatility in some and more attractive price action in others. This week is full of important news and reports and these along with the fundamental drivers that have emerged in recent weeks are giving a hard time to traders and investors. Our focus yesterday was mainly on the British Pound that has come under a lot of pressure in light of the undecided vote ahead of the upcoming referendum. The Pound will continue to attract attention in the weeks to come and every time an important opinion-maker expresses a view the UK currency will be in play.

Price action highlights
Contrary to the Pound that remained quite active yesterday the Euro traded within a sideways pattern between the 1.1000 and 1.1050 levels. The Single currency had come under pressure at the beginning of the week but now the decline seems to have temporarily lost momentum. We need to approach this with caution as the 1.1000-50 support area is of increased importance and a break lower will take a lot of effort as this level is defended by investors that have been making good money on the Euro throughout February.

The Cable remained in the red yesterday and reached the 1.4000 area having lost 400 pips since the beginning of the week. The fear for a potential Brexit is taking its toll on the currency and even though the most likely scenario is that Britain will remain part of the EU investors and corporations have no other choice but to protect themselves. As such they need to limit their exposure to the UK currency and hedge their portfolios in case of a surprise and this causing the Pound to weaken more.

Focus of the day
Today the focus will mostly be in the US as the calendar doesn’t offer too many opportunities for increased volatility. Early in the morning the release of the UK CBI Reported Sales won’t do much to affect the bearish Pound but in the afternoon the reading of the US Services PMI levels is expected to provide some friction. The levels are expected to print higher and that could allow the Dollar to gain more ground against the weakening Euro and Pound.