Forex snapshot

The euro is broadly unchanged versus the US dollar as traders await the update from the German central bank at 11am (London time). Sterling is hovering above the $1.61 mark, as market volatility overnight was low.

Euro and dollar note
Source: Bloomberg

Euro awaits Bundesbank report

The euro is trading at $1.2750. The single currency traded within a tight range overnight, and the one for morning traders will be the Bundesbank report at 11am (London time).

The European Central Bank is still under pressure to tackle deflation. Mario Draghi has discussed the possibility of using ‘unconventional tools’, which some have interpreted as quantitative easing. Germany seem to be the biggest opponent to such a stimulus package so the Bundesbank update will give us an idea of whether the country is changing its tune.

There has been little mention of Greek bond yields this morning and the debt crisis could be entering another phase. If there is a surge in the cost of borrowing it could drag the euro lower. A suggestion that Germany could be open to QE could drive the euro to $1.2640, but only a firm ‘No’ could push it to $1.2840.

EUR/USD chart

Pound holds steady at $1.61

The pound is trading at $1.1618, up 0.1% on the session. I suspect volatility will remain low throughout the morning as there are no economic updates from the UK.

Jerome Powell of the Federal Reserve is due to speak at 3pm (London time). We have had mixed messages from the Fed recently, with James Bullard suggesting that the QE scheme should not be wound down in this month. However, Mr Powell is deemed to be a bit of a hawk. If he contradicts Mr Bullard (which central bankers often do) it could drag the pound to $1.6055. A dovish tone however, may set the pound on a path to $1.6259. 

GBP/USD chart

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