US Consumer Confidence report might bring rate hike talk back on the table

More of the same over the past 24 hours in the major money markets as investors continued where they left off last week. The global sell-off in the stock markets has led major inflows to the Euro that has acted as the main funding currency over the past year and the European currency has seen an incredible rally over the Dollar in recent sessions.

However we believe that it’s important to discuss a development that day after day seems more likely and could turn the tables again in the global money markets. Apart from the recent Asian sell-off the European currencies have seen strong gains against the Dollar mainly due to Fed’s intention to hike rates higher. But with the situation being like this on a global scale the Fed might opt to wait a little bit further and that could trigger a hefty reversal of recent trends.

This is not to say that we believe that the Fed will delay hiking the rate in October, since September seems too far-fetched as a possibility but it is something to keep on the back of our minds. Such a development as a possibility is already being entertained by some analysts and it would be interesting to see if it’s going to catch any traction among investors.

Taking a look at the price action yesterday, the Euro climbed to 1.1700 overnight taking advantage the renewed sell-offs in Asian markets but this whole reaction of the Single currency looks overstretched. With any new step higher the possibility of a reversal or at least a correction becomes even more likely but we need to remain cautious and take our time to find the right opportunity.

Today the release of the German IFO Survey might put some pressure on the Euro and later in the day the Consumer Confidence report from the US could allow the Dollar to take some control of the currency pair.

The Cable rallied to 1.5800 during the past 24 hours but the question now is whether it can hold on these gains. The release of the US Consumer Confidence report later in the day might renew investors’ confidence on a Dollar rate hike and allow the currency to claw back some of its losses against the Pound. The 1.5700 level is eyed as the main support area and any correction should have it as a first target.