Forex snapshot

Volatility is now at record lows as traders appear to be more comfortable to sit on the side lines than second guess the underlying market direction.

The Bank of England
Source: Bloomberg

GBP/USD traders await today's Bank of England comments

Considering the amount of u-turns the Bank of England’s governor Mark Carney has performed in the last week, markets will closely be monitoring this morning’s comments.

Last week’s speech at Mansion House had been enough to finally kick GBP/USD through the resistance of $1.70, and finally set new five-year highs. This was quickly reversed when the members of the Bank of England sat down for a grilling in front of the Treasury Select Committee.

Trying to squeeze an interest rate into 2014 could be difficult, as productivity by the BoE’s own admission is not suitably strong enough to warrant it at the moment, and risking the year-end retail sales by instigating an interest rate rise in Q4 looks unlikely.

The last week has seen GBP/USD stumble slightly, but the fundamentals are still in place for the pound to continue strengthening against the US dollar. Setting higher highs in the currency pair looks to be on the cards.

Spot FX GBP/USD chart

EUR/USD traders try to assess which economy, the US or eurozone, currently looks less steady

The week started off on a bit of a sour note for the eurozone as both manufacturing and service PMI figures missed their targets for France, Germany and the eurozone. Yesterday it was the turn of the US to disappoint markets with misses in core durable goods and awful final GDP figures. In fact, the fall in US GDP was the most aggressive in over 20 years.

Although the pace of the US recovery had been slowing in the last couple of quarters, we are now beginning to see data that could trigger more difficult questions asked of the Federal Reserve chair Janet Yellen.

Even though both the euro and the US dollar have other reasons to fall, it still looks like the European Central Bank’s desire for a weak currency to help the eurozone manufacturers will ultimately see EUR/USD fall. Both the 50- and 200-day moving averages should act as a lid before EUR/USD can once again try to break below the $1.3505 level.

Spot FX EUR/USD chart

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