Forex Mixed in an Uncertain Week of Trading
Forex markets saw further reductions in price volatility last week, as traders start to position themselves for summer activity trends. When we look at things from an historical basis, this generally means that higher yielding currencies are more likely to outperform given the fact that there is the added interest rate incentive for holding long positions.
But when we look at the latest market moves, there are some inconsistencies that forex traders will do well to address. The most striking example of this can be seen in the Euro and the British Pound, as there are some major differences that can be seen when compared to the underlying trends in the US Dollar. The EUR/USD currency pair continues to meet heavy selling pressure while the GBP/USD is closing in on its highs for the year and the much coveted 1.70 resistance level. It is looking increasingly likely that the GBP/USD will be breaking 1.70 before the end of this month, so Dollar bulls should be looking to other pairs in order to play the possibility of additional rallies in the greenback.
The Week Ahead in Forex Markets: Continue Watching Central Banks
In the week ahead, forex traders will to watch for any evidence that the European Central Bank is ready and willing to continue forward with its stimulus programs. This is the main reason why the Euro has been plummeting this month and this will continue to be the case if growth concerns are not solved in the next few months. The 1.40 level in the EUR/USD is still intact and there is little reason to believe at this stage that Euro bulls will be able to pierce this level before the end of the year.
Other currencies like the British Pound have yet to respond to the Dollar’s strength against the Euro, and this is something that could turn out to be the case at a later time. For these reasons, it is not the most prudent idea to start chasing the GBP/USD higher, even though there are still reasons that Sterling could post rallies. In all, it will be important for forex traders to monitor the mixed behavior that currency values are posting now against the Dollar.
If we start to see building bearish momentum in the GBP/USD, forex traders should take this as an indication that the British Pound is likely to follow suit when compared to the bearish activity in the Euro. On the other hand, rallies in the Euro will almost certainly send the GBP/USD to a break of 1.70. These types of moves will likely define the broader trading activity that we see during the summer months. The Euro continues to be vulnerable at current levels, and any future activity here will depend on the course of action that is accepted by the ECB majority.