We have finally seen some larger fluctuations in the currency market Tuesday, with the euro and British pound rallying against the U.S. dollar. What was the reason for that bullish sentiment? It might be argued that investors are willing to take risks ahead of main risk events such as the Bank of England announcement Thursday and the U.S. labor market report Friday.
The weaker-than-expected U.S. GDP report last Friday has raised concerns that the U.S. economy is losing momentum, which is affecting the dollar in return. Apart from the recent dollar weakness, investors prepare for another disappointment in terms of what is expected of the BoE decision tomorrow.
While the market is pricing in a BoE rate cut, there is a risk of policy makers disappointing the market's expectations. Too often in the past monetary policy decisions have failed to meet the market's high expectations.
In a nutshell, we expect both major currency pairs to be exposed to high volatility until the end of the week, whereas we still see the risk to the downside. Hence we doubt that the recent gains in the euro and British pound will be sustained. Let's have a look at the technical picture:
If the pound is able to climb above 1.3375 there might be some room for further gains. However, we expect the 1.3425 level to act as a resistance, from where pullbacks may occur. Selling the pound around this resistance level could be highly rewarding. In short-term time frames the 1.32 level may lend support to the pound.
The euro rose above 1.12 and is now facing a next resistance level at 1.1250. If the euro climbs above that level we see chances of an upward move towards 1.1290. However, we recommend being careful with any bullish engagements as the euro appears to be overbought in the 4-hour chart.
Consequently, the euro could be vulnerable to a correction in the near-term, driving the currency pair towards the next support at 1.1150. Below 1.1140, it could fall towards 1.1080.
Today we will watch the ADP report scheduled for release at 12:15 UTC, which could provide a foretaste of the U.S. payrolls report on Friday. Furthermore, the Non-Manufacturing ISM index is due for release at 14:00 UTC and could have a significant impact on the greenback.
Here are our daily signal alerts:
EUR/USD
Long at 1.1240 SL 25 TP 30-40
Short at 1.1170 SL 25 TP 30-40
GBP/USD
Long at 1.3380 SL 25 TP 20, 40
Short at 1.3310 SL 25 TP 20, 40
We wish you good trades and many pips!
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