The week started slow but the more important events are ahead of us

Limited volatility at the beginning of the week for the currency markets as we haven’t noticed any attractive price action in the major instruments we monitor each day during the past 24 hours. With the UK markets closed for the bank holiday there was a slow start in trading this week but we should not expect the same during the next few days.

The main theme of the markets is the reversal attempt that we have called for since last week on both European currencies in favour of the US Dollar. As we explained in our previous notes the fundamental and technical momentum behind the recent rallies in the Euro and the Cable seem to have been exhausted and both currencies seem likely to retreat lower. All that is needed is a spark, a trigger for the US currency to attract investors’ attention once more.

We believe that the Non-Farm Payrolls report on Friday could act as a fundamental trigger, provided that the report would show significant rebound from last month’s disappointing figures. However until Friday comes we could have some opportunities to see attractive price action in the major currencies, the PMI levels and Retail Sales report scheduled for release in the next couple of days should provide some friction.

Taking a look at the technical outlook of the major currency pairs, we find the Euro trading just above the 1.1100 barrier having come off its 1.1300 highs. The momentum in the Single currency seems to be turning to the downside as the Euro exits its upwards trading channel and the break below the 1.1100 support would be crucial for the descend to pick up pace. During the next 24 hours we have little on the calendar for the Euro so its price action will be mostly dictated by the Dollar flows.

The Cable on the other hand seems to have found some temporary support ahead of the 1.5100 area yesterday as it has settled there after the decline from the 1.5400 area on Friday. The bias on the UK currency pair already points lower and the break of the 1.5100 floor will clear the road for further losses. The PMI reports scheduled for release today and tomorrow are expected to show weakness in the domestic growth and could send the Cable even lower with the 1.5000 level being the next area of focus.