Cable's outlook hinges on where the BoE will focus their attention today

Price action in the currency markets yesterday was quite mixed with unstable performances from the major currencies across the board. During the first part of the day the US Dollar was still in control and was gaining against its peers but later in the day this momentum was reversed and the US currency started correcting lower. We mistakenly typed that the Retail Sales report was set for release today when instead the report will of course be release on a Friday tomorrow.

Talking about the Retail Sales report this could be a reason why the Dollar cannot hold on its gains as analysts expect a lower reading in the consumer spending figures. As we saw in the recent labor market report last Friday the domestic workforce hasn’t seen any progress on its wages and given the uncertainty on a global scale the Retail Sales levels could print in a bearish manner. This of course would not be a positive development for the Dollar hence the current lack of backing from traders.

Today however the focus will be on the British Pound again, the Bank of England is meeting to decide on their monetary policy and even though we expect no changes it might be the commentary that could support the Pound. It really depends on which area of the economy the policymakers choose to focus on: if they choose to warn investors about the low inflation that could go on for some time then the bias will be bearish and the Pound will feel the heat. If they opt to focus on the positive developments of the labor market and how this could affect the whole economy then we could be in for a rebound on the UK currency.

Taking a look at yesterday’s price action, the Euro was mixed during the day and even though the initial trading bias was towards lower levels the 1.0800 area of support limits any potential losses as traders are not yet ready to fully back the Dollar at this time. The rest of the day the Euro corrected higher and tested the 1.0900 resistance and it seems that the Single currency is trading in a sideways, directionless manner between these two important levels waiting for fresh data and that might not come until tomorrow’s US Retail Sales report.

The Cable traded in a similar manner and stayed within a tight range between the 1.4400 and 1.4475 levels waiting for the Bank of England to decide where they want to focus on during their comments today. As we mentioned above the UK currency can really go either way today with a slight bias towards a correction higher since the recent drop in the rate might allow the BoE to sound less bearish.