ECJ backs ECB’s QE

The GBP/USD pair awaits comments from Mark Carney, and EUR/USD is muted after the European court of justice rules greenlights the European Central Bank’s bond-buying scheme.

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Source: Bloomberg

Sterling stands still

The pound has been trading within a tight range against the dollar overnight, and there is no clear directional bias as we begin this morning’s trading session. We are not expecting any major economic indicators to be announced from the UK today, but Mark Carney is speaking before the treasury select committee at 2.15pm (London time). The sizeable drop in UK inflation is going to be on the agenda, and Mr Carney will be forced to refrain from hawkish language, which will keep pressure on the pound.

The downward trend in GBP/USD that has been in be in place since July continues to hold, but there has been consolidation in the $1.5150-$1.5190 region recently. With the market expecting dovish commentary from Mr Carney, GBP/USD is set on its next leg lower.

Having recovered from Tuesday’s selling activity, GBP/USD has rallied during the London open, breaking through its 200-period moving average at $1.5189. This level is likely to act as downside support in search of further upside, with targets at $1.5253. However, should price action fail to sustain a move above the $1.5189 level, a re-testing of the pairs’ 100-period moving average at $1.5138 could be brought into play.

Spot FX GBP/USD

French CPI boosts euro

The EUR/USD pair was nudged higher by an increase in French inflation in December, with the report showed a reading of 0.1%. This compares with November’s reading of -0.2%. The surprise tick up in the cost of living was welcomed by the short-term bulls, as it indicates that the French economy may not be as stagnant as initially thought.

The French CPI numbers haven’t drowned out the chatter of quantitative easing from the ECB, however, and now that the ECJ has given its backing to such a scheme the euro will stay under the cosh.

The Greek election is still looming over EUR/USD, and with less than two weeks to go the single currency will remain in its downward trend versus the US dollar.

At 1.30pm (London time) the US will release its December retail sales figures, when the market is expecting a reading of 0.2%. If estimates are met it will keep the US dollar rally on track.

EUR/USD is currently testing an area of intermediate resistance at 1.1806, in which it is likely to see both the 50- (1.1806) and 100- (1.1810) period moving average cap any further upside in the short-term, resulting in a re-testing of 1.1758. However, should price action break through topside resistance, the 200-period moving average, currently trading at 1.1867, becomes the next likely area.

Spot FX EUR/USD

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