Major Currencies Tread Water as Markets Await BOE, ECB Outcomes

Talking Points

• Eurozone, UK PMIs to Reinforce ECB and BOE Policy Easing Expectations
• Thin Liquidity May Amplify Volatility, But Conviction Likely to be Lacking

The US Dollar (ticker: USDollar) oscillated in narrow ranges against the major currencies in overnight trade, with markets settling into consolidation mode as liquidity drained ahead of tomorrow’s US market holiday and traders reserved directional conviction before Thursday’s heavy event risk. The European Central Bank and the Bank of England are both due to deliver their monthly policy announcements, with additional easing expected on both fronts.

Final revisions of service-sector and composite Eurozone PMI readings headline the economic calendar. Expectations call for the metric to confirm that cross-sector economic activity in the single currency area shrank for the fifth consecutive month in June. The pace of contraction is expected to match May’s result, amounting to the fastest retrenchment in three years. UK Services PMI is forecast to show the non-manufacturing sector expanded, but at the slowest rate in seven months.

On balance, the slide in third-quarter UK and Eurozone GDP growth expectations (as tracked by a Bloomberg survey of economists) over the past two months suggests traders ought not to be surprised by sluggish performance itself. The focus snow looks to be on what policymakers are prepared to do about the downturn, meaning today’s releases are unlikely to yield much in terms of trend development until the aforementioned rate decisions come across the wires. With that said, thin liquidity conditions can amplify otherwise shallow moves, so it seems wise not to read conviction into any emerging volatility for the time being.

Asia Session: What Happened

Euro Session: What to Expect

Critical Levels

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

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