Forex snapshot

Ahead of the announcement from the European Central Bank the $1.36 level remains key for EUR/USD, while GBP/USD looks to see if it can be inspired to retest five-year highs.      

EUR/USD hopes for good news

Markets have spent most of the week waiting for ECB president Mario Draghi to speak, and this morning is no different. Since his comments last month the EUR/USD rate has dropped by over 300 pips, and only the $1.36 level has offered any real support; it now remains to be seen whether today’s statement will offer enough to stabilise the single currency.

It is broadly agreed by market-watchers that the ECB will cut interest rates from 0.25% down to 0.1%, but this is more of a cosmetic change rather than an action that will alter investor perceptions. The real question is: what else will the ECB do on top of this?

With the track record the ECB has for delaying action, there is a very real chance that currency traders will find themselves being underwhelmed by today’s statement and, as such, a retest of the 200-day moving average closer to the $1.37 could well be seen.

Spot FX EUR/USD chart

GBP/USD benefits from UK recovery long-term

Normally the first week of the new month will see Friday’s non-farm payroll figures take top billing with the Thursday Bank of England statement a close second. This month, however, both are being outdone by the anticipated statements from the ECB.

GBP/USD has had a correction over the last six weeks as it has drifted back down to the support of the 100-day moving average. On a number of occasions over the last six months this has proven to be a resilient level, sufficiently so to temp buyers back off the sidelines.

Arguably the driving force behind this has been the steady flow of good economic data that has come out of the UK and the fact that the UK recovery now appears to be moving at a faster pace than its US counterparty.

Assuming that GBP/USD can keep closing above $1.37 and use the support of the 100-DMA, a retest of the five-year highs above $1.70 looks on the cards.

Spot FX GBP/USD chart

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