Dollar pulls back as US observe bank holiday

The dollar has eased in overnight trading in anticipation of a slowdown in volatility ahead of today’s trading session, as the US celebrates Martin Luther King Jr Day.

A pound atop a dollar note
Source: Bloomberg

Pound trades sideways

GBP/USD traded sideways overnight and there was consolidation in the $1.5140 region. We are not expecting any economic announcements from the UK or the US today.

On Wednesday the Bank of England will reveal the voting breakdown from its last meeting, and the market is expecting two members to be in favour hiking rates and the other seven members to prefer leaving rates on hold. In relation to the asset purchasing scheme all nine members are anticipated to vote in support of keeping it unchanged at £375 billion. Should expectations be met it will keep pressure on GBP/USD.

As Chris Beauchamp stated, the excellent consumer confidence figures from the US on Friday highlights the widening gap between the two countries and this will ensure GBP/USD remains in its downward trend.

GBP/USD is still below the 200-hour moving average of $1.5152, and should this key resistance level hold price action is likely to retest downside support at $1.51. A move through this will bring the recent low of $1.5035 in sight. However, if the 200-hour MA is cleared, thus turning into support, an upside target of the pair’s 50-hour MA at $1.5171 would be brought into play. 

Spot FX GBP/USD chart

Euro faces crucial week

EUR/USD is standing still as it begins its make or break week. The European Central Bank meeting on Thursday will be of major importance as the market is expecting quantitative easing from Mario Draghi. Before we get the ECB decision we will hear from the German central bank today, and German opposition to the bond-buying scheme is well known.

The Bundesbank will reveal its report at 11am (London time), and the tone of the report will give us an indication as to what we can expect from Mr Draghi on Thursday. If Germany softens its stance on QE it will drive EUR/USD lower.

We are less than a week away from the Greek general election and the left-wing Syriza party is still leading in the polls; this will add to the selling pressure on EUR/USD. The market is fearful that a Syriza victory will set the wheels in motion for a Greek exit from the eurozone.

Since bouncing off a low of $1.1459 (January 16), EUR/USD has rallied to its current level of $1.1583, but any further upside is likely to be capped by the pair’s 50-hour MA currently trading at  $1.1605. However, it is supported by a bullish reading in its relative strength index and should price action breach topside resistance; the next likely target presents itself at $1.1636. If topside resistance holds, then a retest of downside support at $1.15 will be the target. 

Spot FX EUR/USD chart

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