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Forex snapshot

David Madden looks at how upcoming economic data could affect the EUR/USD and GBP/USD pairs.

Euro extends gains

The euro is higher versus the US dollar after the disappointing GDP figures from the US yesterday.

It has been a tough two weeks for the euro as speculation is growing that the European Central Bank will introduce measures to tackle deflation next week. Yesterday’s larger-than-expected contraction in the US growth gave traders the signal to go long on the euro.

This morning, Italy revealed a small drop in its consumer price index for May. There was a small reaction to the news from traders, but this is additional proof that indebted eurozone nations are struggling with deflation. 

At 2.45pm (London time), the US will announce the Chicago purchasing managers index report. The expectation is for a reading of 60.8, and if the report is strong the euro could drop below the $1.36 mark. Even if the report is soft the euro will still find it difficult to retrace the recent high of $1.3660. 

Spot FX EUR/USD chart

Pound creeps higher

Sterling is extending its gains versus the US dollar today on the back of yesterday's soft growth report from the US.

The pound is trading at $1.6733, up 0.1% on the day as worse-than-anticipated growth figures from the US brought the dollar’s rally to an end. We are not expecting any major economic data from the UK today but on Tuesday the construction PMI will be released. This week’s mortgage figures disappointed traders so we could expect a similar reaction.

The large decline in US growth in the first quarter may delay the Federal Reserve’s tapering, but at least the US is in the process of winding down its stimulus package. Friday’s non-farm payrolls will give us a clearer picture of the US economy.

The University of Michigan consumer sentiment will be announced today at 2.55pm and analysts are expecting a reading of 82.9. A strong report could push sterling to $1.6693.

Spot FX GBP/USD chart

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