Dollar rallies one last time this year driving the rest of the majors lower

During the past couple of days we’ve been talking about the limited volatility in the currency markets in light of the holidays’ season and how price action was not anything too exciting. However it seems that yesterday was different as traders that were still in their desks found the opportunity to make one last best for the year when the US Advance Goods report hit the wires.

The result was a hefty pro-Dollar rally across the board with the Euro and the Pound giving up most of the ground they had gained during the previous week when profit taking led the Dollar lower. There was nothing too important about the release of the report so the rally should be mostly attributed to the thin trading volume that allowed for an over-extended reaction from the US currency on the back of the report.

Looking ahead we don’t expect too much action over the next sessions as the year is almost up and given the even more thin trading volume we wouldn’t suggest any trading ideas to our audience. We believe that money markets is a wonderful field of action when there’s participation and deep liquidity while periods when trading volume is extremely limited should be avoided as price action could cause unexpected performances from even the most heavily traded instruments.

Taking a last look at the price action for this year we find the Euro trading lower over the past 24 hours. The Single currency dropped below the 1.0950 support yesterday and tested the 1.0900 level on the back of the Advance Goods report but price action overnight allowed the currency to correct some 30 pips higher. During today’s session we could see another attempt to test the 1.0900 support area but as we mentioned above we believe that it’s best to sit this one out, there are only a couple of housing reports from the US and given the lack of participation we’re better off staying neutral for the rest of the week.

The Cable came under pressure as well yesterday but the decline for the UK currency started earlier and lasted longer compared to its European peer. The Cable dropped from the 1.4900 area early in the morning and during the course of the day the currency fell briefly even below the 1.4800 level printing a new low for December. During the Asian session a mild correction allowed the Pound to climb back above the 1.4800 level but more weakness should be expected moving forward. As mentioned above the best choice is to remain neutral and reassess the Cable’s outlook starting next week when trading volume picks up again.