UK Retail Sales and US inflation report might provide some friction today

General market theme
Choppy price action continues being the main market theme in the global currency markets and we have discussed this many times in our recent reports. Yesterday was nothing different and without any tier-1 news or developments to drive currencies towards a specific direction we witnessed uncertain price action and lack of commitment from traders. This is part of the transition that the investment community is going through as we moved from the bullish pro-Dollar bias at the end of last year to the uncertain and volatile environment that the past 1.5 months have been.

Price action highlights
Given the lack of direction and commitment we talked about the price action in the majors has been lackluster. The Euro edged lower over the past 24 hours on the back of the bearish bias that the ECB meeting’s minutes revealed even though traders shouldn’t have been surprised from it. That’s why the initial reaction that drove the Euro below the 1.1100 area is fading and this morning the Single currency is trading around the 1.1120 level. This is not to say that the bias is in favor of the European currency as any rallies higher should be treated with caution and the focus should be on the short-term while there’s no clear outlook for either the Euro or the Dollar.

The Cable on the other hand showed strength yesterday mounting a correction attempt versus the Dollar when it rallied above the 1.4300 level to test the 1.4400 highs. Encouraging comments from BoE policymakers along with a bullish bias ahead of today’s Retail Sales report allowed the Pound to gain some ground against the Dollar. Even though the currency is back where it started yesterday after an overnight pullback we should expect more strength from the Cable today if the Retail Sales report confirms expectations, first target is the 1.4400 highs looking towards the 1.4450 area.

Focus of the day
As we mentioned above the focus this morning will be on the Pound and the release of the Retail Sales report however later in the day traders will be very interested to see how the inflation data from the US will print. Expectations are set for a positive reading that could enhance the Dollar’s outlook at the end of the week and drive the rest of the majors lower.