Forex snapshot

Currency markets continue to factor in a QE policy from the European Central Bank, while GBP/USD traders wait for the latest inflation report hearing.

US dollar notes
Source: Bloomberg

Euro running out of steam

EUR/USD has had negative weighting on it for seven months, and although currency traders are factoring in an increased chance of the ECB implementing a form of quantitative easing, the move is beginning to feel like it has run out of steam. Although not fully factored in, markets will be expecting Mario Draghi to elaborate on last week’s speech and add timelines too. Assuming this happens, a return to the run lower looks likely, however if this does not materialise quickly EUR/USD might have a small corrective bounce.

Economic data releases today and tomorrow are focused on the US side of the equation. Strong US data might not trigger the size of move previously seen as currency traders become increasingly blasé to good US data.

On two occasions in the last month we have seen buyers come in when EUR/USD has dipped below the $1.24 level, and this is beginning to look a supportive region for the euro to continue bouncing off.

Spot FX EUR/USD chart

Cable traders await BoE report

Having previously looked like a hot race the debate over which country, the US or UK, will raise interest rates has somewhat cooled. Currency markets are now factoring in the second half of 2015 as the most likely start for the UK to increase its rates. Expectations for a US rate rise are still centered on the ’considerable time’ statement from the Federal Reserve. Having previously been a race between two hares, it now looks more like one between two turtles.

This morning will see the latest Bank of England inflation report hearing. This regular grilling from the Treasury select committee normally sees Mark Carney and his team having to fight their corner. Considering the global deflationary pressures that are hitting everyone, the fact that UK inflation is below the 2% target is no real surprise.

Unless we hear something particularly surprising from the hearing, I would expect these subdued levels to remain for GBP/USD. The $1.56 level still looks to be attracting buyers, but with the next couple of days giving us extensive US data releases it is difficult to see any move above $1.58 gaining traction.

Spot FX GBP/USD chart

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