Euro and Pound to attract traders' attention this week, Dollar still weak

General market theme
On Friday volatility in the financial markets was on low levels and price action didn’t impress anyone as traders preferred not to commit into any serious repositioning ahead of the weekend. The whole past week market participants were focused on the US Dollar and its fresh weakness on the back of the recent Fed meeting where the central bank hinted that less tightening is to be expected from them during this year.

This week the focus will shift away from the Dollar and traders will have the opportunity to receive fresh data from the Eurozone and the UK bringing the Euro and the Pound centre-stage. The release of the ZEW and IFO Surveys and UK inflation and retail sales figures are bound to provide fresh stimulus to the European major currencies so we need to be prepared for some serious pickup in volatility and price action.

Price action highlights
The Euro came off its above 1.1300 highs on Friday to trade down to the 1.1250 area where we find it this morning, some minor profit-taking at the end of last week drove the currency lower as there were no fresh news to cause the correction. During the first 24 hours of this week the calendar is empty of any important EU-related news so we might see some consolidation for the time being but the bias is towards the upside for the rest of the week as the Dollar is still on the backseat and the upcoming reports are expected to print in a bullish manner. First stop for the Euro to the upside is of course the previous 1.1330 highs.

The Cable was also on a corrective phase on Friday when the currency dropped off its 1.4500 highs and traded lower and this morning the Pound is trading just shy of the 1.4400 support level. The 1.4400 area is a considerable short-term support area for the Pound and given that the bias is bullish for the UK currency we would expect a reaction from it at this point. The calendar is also empty for the UK currency today but starting tomorrow a number of important reports are expected to add to the bullish BoE sentiment and possibly send the currency towards the 1.4500 highs once more.

Focus of the day
The day ahead is empty of any important news or reports from the major currency pairs, only a tier-3 report on the European Current Accounts along with the not that market-moving Home Sales report from the US later in the day. Fed’s Lacker will be speaking in Paris this morning but we expect nothing new from the US policymaker so the Dollar should remain weak at the beginning of the week.