Limited volatility and price action as traders are looking forward to holidays

Limited volatility in the financial markets just a couple of days ahead of the Christmas holiday and it seems that investors are happy with their positioning at the time. Like we mentioned in our report yesterday these 2 weeks are traditionally very slow and participation in the markets is reduced hence we should not expect any radical moves.

Investors looked to take some profits off the table yesterday especially in the Euro following the 1.0800 lows of last week on the back of the Fed decision and policy adjustment to reflect the central bank’s bullish outlook. The coming year is expected to be a strong year for the US currency and if the ECB continues to ease or eases even further there is the possibility, far-fetched at this time, of the Euro reaching parity.

However we should not expect any developments on this front until the end of the year, traders are planning their holidays at this time or they are already on their way there so price action in the Forex market will struggle to produce any amazing swings. The economic calendar is obviously light and with Christmas on Friday this week will have one trading day less.

Yesterday the price action was limited and traders were more focused on the Euro rather than anything else. The Single currency managed to overcome the 1.0900 resistance level as profit-taking drove the Dollar lower against its European counterparty but again the momentum was limited and it would be hard to see any serious continuation to this move. If the Euro manages to build a base of support above the 1.0900 level then we might see an attempt to rally towards 1.1000 as profit-taking ahead of the year end continues next week.

The Cable remained unchanged and traded around the 1.4900 area still looking for direction and momentum as there is no fresh news from the UK to generate some friction. There was limited profit-taking on the Cable yesterday as traders were not so heavily positioned against the British currency, hinting on the fact that the Pound will be the next currency to get a rate hike some time in 2016. Today the release of the Public Sector Borrowing report might spark some volatility in the Pound with the pivot level being at the 1.4950 as any rallies higher have to overcome this area first.