Euro And Pound Might Look To Benefit From The Pause On Dollar’s Rally

Euro And Pound Might Look To Benefit From The Pause On Dollar’s Rally  | May 11, 2016 08:26

General market theme
Price action in the major money markets over the past 24 hours was limited as traders are focusing their attention on the second part of the week which is the more event-heavy with key reports and events from around the globe. The broader pro-dollar bias we noticed during the recent sessions seems to have eased for the time being as investors are optimistic ahead of the Retail Sales report on Friday but prefer to get a confirmation of a higher consumer demand before adding to their positions.

This has allowed for the euro and the pound to remain afloat against the US currency and as long as this sentiment holds we could actually see an attempt to correct higher from the two European currencies, especially the pound in light of the Production reports pending for release today.

Price action highlights
The euro managed to remain afloat over the past 24 hours and spent the day trading sideways between the 1.1350 and 1.1400 levels while the pro-dollar bias has taken a break. As investors are waiting for Friday’s Retail Sales report from the US to re-ignite or kill the dollar rally the euro has the opportunity to correct to the upside given the necessary momentum. The 1.1400 short-term resistance is key here and any attempts from the euro to correct against the dollar would need to overcome this important level first and then look for the 1.1450 level as the next area of focus.

Similar performance from the cable that has come off its sub-1.4400 levels and yesterday traded on either side of the 1.4450 level showing some correction appetite. Today’s Industrial and Manufacturing Production reports might be the necessary stimulus for the UK currency to try and move higher against the dollar as the momentum seems to be shifting higher on the short term. The 200-period moving average is situated around the 1.4480 level and if the cable manages to climb above it we could see a further extension towards the 1.4550 area.

Focus of the day
As we mentioned above the focus today will fall on the British pound as the release of the Production reports is expected to attract investors’ attention. We don’t expect too much of a reaction from the pound though ahead of tomorrow’s Inflation Report from the Bank of England but nevertheless we could see some intra-day price action in the currency pair.

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