Volatility was again elevated in the currency markets yesterday but it came with a twist as the most anticipated event of the day, the release of the Durable Goods Orders from the US, came out significantly higher than expected. As a result the Dollar enjoyed a rally against its peers and especially versus the UK Pound as the Cable dived more than 200 pips.
With the sentiment over the US domestic economy being mixed over the past weeks and investors doubting whether the Fed will move forward with raising rates soon the surprise in the US report was welcomed by Dollar bulls. Some analysts were even making word for pushing any hiking initiatives for next year so one can understand how important this shot of confidence was for the US economy.
The question now is whether this rally could be sustained and if more gains are on the way and today’s US GDP report will be a good opportunity to see whether investors will back the Dollar to do well. Analysts expect a steady printing so any deviation from the expected levels could either propel the Dollar even higher or drive traders to quickly liquidate any gains and get out of the US currency.
From a technical standpoint, the Euro has come off its previous 1.1700 highs and following the recent correction in favor of the Dollar is now trading around the 1.1350 area having reached as low 1.1300 yesterday. The decline has been quite substantial but there could be more to come if traders look to back the Dollar and we could see the Euro making its way towards the 1.1200 area if today’s US GDP report prints in a bullish manner.
The Cable on the other hand had a much more volatile reaction to yesterday’s news as the currency pair dropped from the 1.5700 area to trade around 1.5500 this morning. It seems that the surprise from the Durable Goods Orders was quite a hit for the Pound traders that dumped the Sterling very quickly driving the currency pair near its monthly lows. The Cable is strongly oversold at this time so it will take a couple of sessions for trading to normalize and understand what will be next for the UK currency pair.
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