So we’re back in our desks after a long bank holiday weekend and it is interesting to see what has happened in the money market over the past few days. What we cannot fail to notice is the refreshed Dollar rally against the European major currencies that has lasted over a week now. The US currency gained significant ground against the Euro and the Pound last week and just as it seemed that these gains were capped the Dollar extended its move on Friday and yesterday.
It was the combination of fresh bullish news from the US and renewed concerns about the stability of the Euro area that allow the Dollar to extend its rally against the Euro and the Pound. On Friday the release of the US inflation levels printed better than expected reaffirming the market’s conviction that the Fed will move forward with raising interest rates soon. This development allowed the Dollar to push forward against its European peers.
The Euro suffered from fresh concerns about Greece’s ability to meet a loan repayment to the IMF and this news combined with the encouraging US inflation report pressured the Single currency towards fresh lows. The Euro dropped from the 1.1200 highs of last Friday below the 1.1000 barrier before the end of the week and this morning is trading around the 1.0950 area.
The bias in the currency is negative and as long as the speculation chatter on whether Greece will be able to meet its obligations continues we see little chance for the Euro to recover. The release of the US Durable Goods report and Consumer Confidence levels today might allow a correction if the print lower as expected but we would remain cautious over any reversal opportunities.
The Cable was also under pressure at the end of last week on the back of the US inflation levels. The UK currency had enjoyed a relied rally earlier in the week and had made it to 1.5700 only to succumb to Dollar’s strength and trade below the 1.5500 area before the week ended. This morning the Cable is trading around the key support area of 1.5450 and the bias remains negative.
It will be critical to see how the currency pair will react after testing this important support area, any flows are mainly Dollar driven at this point as we have no UK-related reports or news and we will have to wait until Thursday for anything coming out of the UK. This is to mean that we should be a bit reserved against any kind of price action at this time.
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