Dollar starts the new year strong against the rest of the major currencies

Currency markets have been relatively active during the holidays’ season but nothing too exciting took place as there were no fundamental or technical developments on any fronts to turn the tables. Traders took some time off from their trading over the past couple of weeks and that was obvious as the price action in the major instruments we monitor in our daily report had little to show for.

Leading up to the holidays the broader market theme was a mild Dollar sell-off exactly as we expected, we had warned our audience about this possibility as traders preferred to bank their pro-Dollar profits. The US currency was strong across the board before the December rate hike decision and after that development most traders decided to take their profits off the table driving the currency lower.

Over the past couple of trading days however the Dollar received fresh support and the new year started with the US currency printing fresh highs against its rivals hinting on a strong year. It is definitely far too early to make any safe assumptions as the thin trading volume and participation in the markets could have allowed the Dollar to rally a day before New Year’s Eve and yesterday when the Asian markets opened for trading. We do expect a strong year for the US currency but the best option is to adopt a wait-and-see approach over the first sessions of the year.

Taking a look at the recent price action, the Euro printed a 1.0825 low during the overnight Asian session threatening the 1.0800 December lows. Later during the session the Single European currency recovered higher to test the 1.0900 level which acts as a short-term pivot level and this morning the currency is trading just shy of this figure. The bias for the Euro remains bearish as long as the currency is trading below the 1.0900 resistance but we should be careful during these first sessions and avoid drawing any premature conclusions.

The Cable was similarly bearish over the past couple of sessions but unlike the Euro the UK currency lost its December lows overnight printing a fresh low at 1.4700. The bias here is also bearish but we have to note that the Pound looks oversold against the Dollar so fresh lows might require fresh developments to drive investors to sell the UK currency or load new pro-Dollar positions. The UK Manufacturing PMI report and the US Manufacturing ISM levels are pending for release today but again caution is advised as traders are returning to their desks.