Alpesh Patel
InvestingBetter.com
General market theme
Friday was quite a volatile day to end the week and the first month of the new year as the bank of Japan’s decision to ease their policy further made sure that volatility remained elevated. With extended rallies in the currencies we’re monitoring in this report the last 24 hours of the previous week were a flight towards safer havens for the Euro and the Pound that posted strong losses in favor of the US Dollar.
Traders and investors are now clear that the volatility in the financial markets, the drop in commodity prices and the slowdown of the global economy is taking its toll and after the BoJ move the question now is how the rest of the major central banks will react. We will have many important events over the current week, including the Non-Farm Payrolls and the BoE Rate Decision that will give us more food for thought to answer the question above.
Price action highlights
As we mentioned above the Euro and the Pound came under pressure on Friday on the back of the Bank of Japan’s decision to go ultra-defensive and introduce negative interest rates. The Euro that was trading above the 1.0950 area prior to the decision dropped below the 1.0900 support as soon as the European markets came online and ended the day with a 1.0810 low. Over course of the Asian session the Single currency has corrected a bit higher trading around 1.0850 at this time but the bias remains bearish even though the Dollar struggles to benefit.
The Cable was on a similar mood on Friday, strong losses drove the currency below 1.4200 even though the UK currency was trading above the 1.4400 barrier on Thursday. We have made word several times about the fact that the UK currency is trading above its strength and a move lower would be in the cards and we continue to remain bearish. We expect the BoE Rate Decision and Quarterly Inflation report to echo the bearish bias that the central bank has for the economy and drag the Cable even lower this week.
Focus of the day
Today we will focus our attention on the Personal Consumption and ISM Manufacturing reports from the US later in the day. The reports are expected to print in favor of the US currency and that could put the Euro and the Cable under pressure again and erase any overnight correction the currencies had at the beginning of the week.
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