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Forex snapshot

EUR/USD has managed to claw back a little of yesterday’s lost ground while GBP/USD continues to weaken.

Five and ten pound notes
Source: Bloomberg

Euro traders await French data

Yesterday saw the European Central Bank awake from its slumber and move into action. It cut the base rate down to just 0.05% from 0.15% and also announced that in October it would start buying asset-backed securities. On top of these two measures the ECB has also increased the charge being attached to banks leaving funds in cash, with a charge from its -0.2% deposit rate.

The reaction to this was instantaneous as EUR/USD fell by over 150 pips and was 220 pips lower than the previous day’s price. The euro is now trading round levels last seen in July 2013 and is heavily oversold. At the moment their still remains little economic data being provided by the eurozone nations to warrant a change in this bearish sentiment.

Monday should be a calm start to the week, but the first sentiment test for the euro will come on Tuesday morning when France announces both its budget balance and trade balance figures. Considering how oversold EUR/USD is currency traders must be looking for levels to close out shorts or go long, but that might not happen until the double bottom levels of 2013 around the $1.28 level.

Spot FX EUR/USD chart

GBP/USD selloff could continue

The last two and a half months have seen cable drop by over 800 pips as the market consensus swung in favour of the faster-paced recovery in the US. The tail end of last week had seen the start of a recovery in the GBP/USD rate, but the YouGov poll on the Scottish election, at the beginning of the week, put paid to that. The fact that the 'No party' had seen its 22% lead whittled down to just 6% in a little over a month saw currency traders begin to take the breakup of the UK more seriously. This was then followed by an extensive Goldman Sachs article painting a particularly bearish picture should this come to fruition.

Next week could see a fresh shake up as Bank of England governor Mark Carney is due to speak on Tuesday, and the recent track record of his public speeches has almost guaranteed volatility in the GBP/USD market. We are now back to levels last seen in February 2014 and this selloff is beginning to feel exhausted.

Spot FX GBP/USD chart

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