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Forex snapshot

GBP/USD and EUR/USD races to zero look to have momentarily been halted, but today the first of a number of possible catalysts this week could re-start the race.

German flag
Source: Bloomberg

Big week for EUR/USD

Euro traders will have come into the office today fearful of what remains of the week; the latest German ZEW economic sentiment figures will be announced at 10am, and it would be a brave call for anyone to expect anything other than weak figures. Technically we are still expecting to see a reading of 0.2 optimism, but considering this was at 61.7 in January we are knocking on the door of German sentiment turning bearish.

Today will also see the monthly eurozone industrial production figures announced, which are expected to shrink by 1.5%, but these are a little more prone to oscillate between contraction and growth. Today is also the European council finance meeting in Brussels where France’s latest budget plans are expected to be rejected due to the lack of austerity measures.

This therefore looks like it’s going to be a long week for EUR/USD, and there are plenty of opportunities for the short rally to come to an end. A retest of the month lows of $1.25 could well be the end result.

Spot FX GBP/USD chart

GBP/USD could see renewed weakness

Renewed weakness in the UK inflation figures – driven by the continuing price war being waged by food retailers, the depressed oil and energy prices, and the seasonally mild weather likely to see cloth retailers having to drastically discount ranges due to oversupply – are all compounding to lower inflation.

Only a break below the 1% level would trigger Bank of England governor Mark Carney into writing a letter to the chancellor explaining why the rate was more than 1% away from the 2% target. We are some way from that, but the weakening inflation rate does relieve pressure on the need to raise the interest rate and the timeline for the UK starting that process looks likely to be pushed further into 2015.

Short-term, this increased buffer should trigger renewed weakness in the GBP/USD rate, and a run towards the previous year-lows of $1.5958 could easily materialise.   

Spot FX EUR/USD chart

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