Consolidation was always likely to be the dominant theme on Monday, especially with a notable lack of liquidity given market holidays in the UK and US.
The latest CFTC positioning data recorded a further small increase in speculative dollar longs while the net short Euro positioning also increased slightly. Positioning is by no means extreme, but will tend to make it more difficult for the US currency to advance further against the Euro without at least a limited correction.
Although weekend events had potentially important political and geo-political ramifications, the immediate market reaction was limited. There were strong votes against establishment parties in elections to the European parliament, notably in the UK and France as voter frustration erupted into protest votes. In Ukraine’s presidential election, there was a commanding victory for pre-poll favourite Poroshenko.
Traders, for now, were looking more closely at on-going monetary policy issues to guide price action despite potentially important negative Euro implications and frustration with austerity.
ECB President Draghi delivered an in-depth analysis of monetary policy issuers on Monday. In essence, the ECB head stated that the ECB would do what was required to met the medium-term 2% inflation target and degrees of action would be dependent on the severity of the situation. The rhetoric did nothing to discourage expectations of a rate cut in June without adding to speculation over more aggressive measures at this stage and the Euro impact was limited.
EUR/USD found support on dips below the 1.3620 area on Monday and corrected back to the 1.3645 area with the market caught between longer-term bearish sentiment and shorter-term demands for a correction. A daily close above 1.3640 would offer some support to the bullish camp on a recovery of the 200-day moving average.
GBP/USD was trapped just below the 1.6850 level while USD/JPY was unable to break above the 102.0 level.