European currencies print new highs as Dollar remains in the backseat

This week started on the same tempo that the last one finished with the US Dollar weakness being the important market driver behind major instruments’ price action. Monday was no different as the economic calendar didn’t offer anything new in terms of figures or reports and we had little developments in any economic or geopolitical fronts.

As such the major currency pairs traded on the back of the market’s anxiety for the Fed meeting on Wednesday and the US Dollar remained in the backseat as traders speculate on whether the Fed will rule out a June rate hike altogether. From our point of view, June as a date for a potential date to change monetary policy was always a far-fetched possibility so we think that the markets are now discounting their previous overly bullish expectations.

So ahead of the important and potentially market-moving Fed meeting in 48 hours the major European currencies we monitor each day added gains against their US counterparty. The Euro was a but reserved and only peaked above the 1.0900 level at the beginning of the day but spent the rest of the session trading near these levels.

Nothing major came out in terms of developments other than the reshuffling of the Greek negotiation team to ease Euro-group’s distaste for the Greek FinMin Yanis Varoufakis. Investors took this as a sign of resolve from the Greek government to find a solution between the two parties and the Euro benefited on the back of it.

We could expect further gains as we move closer to the Fed meeting and if the Euro can establish a foothold above the 1.0900 level then a bullish Fed meeting should be able to send the currency towards the 1.1000 figure again. Today the only piece of relevant information is the Consumer Confidence report from the US that we don’t expect to have any major effects on the currency.

The Cable on the other hand has been able to capitalize on the recent Dollar weakness in a far better degree and yesterday was no difference. The UK currency reached the 1.5250 area after an initial pullback in the morning and it seems that the way to go is still higher. Having said that we should explain that even though more gains could be expected in the short-term we must note the diminishing momentum that could reverse the rally in the more medium term.

For the time being any short-term price action will hinge on the way the UK GDP report will be released today. The targets to the upside extend as far as the 1.5350 area while a sudden retraction could send the Cable challenging the 1.5100 support floor.