US dollar strength continues to dominate

When in doubt both EUR/USD and GBP/USD have reverted to the long-term trend of US dollar strength.

Euro and US dollar notes
Source: Bloomberg

50-DMA capping EUR/USD upside

This morning will see an extensive amount of eurozone economic data that the currency markets will have to absorb. Although French manufacturing figures were weaker than expected, the negative sentiment has been quickly replaced following Germany’s better figures. Markets had been expecting German manufacturing to confirm growth with a 50.4 level, but it has come in much stronger at 51.2. At 10am the latest German ZEW economic sentiment data will give an indication of how the German analysts and investor feel.

The 50-day moving average has proven to be a cap on any upside for EUR/USDEUR/USD, and on a number of occasions it has clearly hit its head on this level. At present the 50-DMA is sitting at $1.2493.

Spot FX EUR/USD chart

GBP/USD traders await BoE figures

This morning has already seen the release of the UK bank stress test results and only Co-op has failed, something the markets had been expecting. This clear signal that the financial stocks are at least no worse than we assumed has seen a little more confidence in the UK.

The focus will soon shift to the release of the latest Bank of England inflation figures. With oil continuing to fall, expectations are for a drop of 0.1% down to 1.2% for the CPI year on year. This might still be 0.2% away from the BoE governor having to write to the chancellor explaining its levels, but it appears it is only a matter of time before that is the case.

The 50-DMA has (like the EUR/USD) proven to be a barrier to higher levels for GBP/USD, and in conjunction with the $1.58 level should prove to be a step too far.

Spot FX GBP/USD chart

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