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Euro remained stable, while pound continued its downward trend before the opening of the US trading session. The latter happened due to expectations for UK CPI to grow from 4.0% to 4.1%. The former, on the other hand, surprised many because industrial production data in the region showed a shift from a -5.4% decline to a 1.2% growth.
After the opening of the US session, both euro and pound started rising, which could be deemed as a delayed reaction to the statistics. However, the main factor should be the overbought condition of dollar, as market players seem skeptical of the unexpectedly positive industrial production data.
The situation may change during the European trading session today, especially if the pace of decline of UK retail sales slows down from -2.4% to -2.0%. This will push pound up, and with the persistent overbought condition of dollar, euro may be influenced as well.
However, more noticeable movements will likely occur during the US trading session, when several important reports come out. Among them, jobless claims have the least significance, as forecasts say the total increase will only be 6,000. In contrast, retail sales will accelerate from 5.6% to 5.8%, while industrial production will increase from 1.0% to 1.2%. The challenge lies in the overbought condition of dollar, as that could limit the upward potential.
EUR/USD reached the support level of 1.0700, where the volume of short positions decreased. This led to a slowdown in the decline and a rebound from this level. For subsequent growth in the volume of short positions, the price needs to stabilize below 1.0700 throughout the day. Otherwise, the existing rebound may linger on the market.
A strong downward movement occurred in GBP/USD, but it did not lead to massive price changes. The volume of short positions decreased around the local low of last December, leading to a slowdown in the decline. To provoke a rise in the volume of short positions, the pair needs to stabilize below the area of 1.2500/1.2530. Otherwise, the current rebound may return pound to the level of 1.2600.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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