Euro continues to gather momentum
In light of a quiet data day today the markets are reacting heavily to external factors, so volatility can be expected. As global commodity prices slide, coupled with the ongoing possibility of a global currency war after China’s move to devalue its currency last week, we should expect to see investors head back to USD as it is seen as a safe haven.
However, GBP/USD has slid to new lows this morning, already hitting 1.5660 interbank. This could be due to a bullish view from UK Confederation of British Industry (CBI) who are predicting a UK rate rise in Q1 2016. Furthering the weakening of the Greenback are thoughts that the Fed is now more likely to hike rates in December, rather than September.
The Euro continued to gather pace over the weekend, maintaining the momentum it picked up from the middle of last week. As stock markets sell off and commodity prices hit a 16-year low, the risk appetite from traders seems to have picked up with the Euro being the main beneficiary.
This comes despite no improvements in the domestic economy throughout the Eurozone nations. With the pressure the single currency is putting the US Dollar under – pushing towards the 1.15 interbank level – it raises some eyebrows when considering that the Fed is seemingly next in line to raise the interest rate and a quick correction could be around the corner.
It is important that traders are not fooled and they should also consider that August is a notoriously quiet month when market liquidity is lower than usual. This means that smaller volumes being traded can have a greater effect. Given the Euro strength, it will be interesting to see what happens from an economic perspective today as German GDP and IFO business condition figures are published. On the one hand, it could fuel the fire, on the other, it could be a reality check. Any price action is likely to be moderate given the overall sentiment. However, we look to this as a piece of the ever more challenging puzzle.