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Dollar mixed ahead of US GDP figure

The dollar was mixed in overnight trading as the market eagerly awaits the US GDP report at lunchtime. 

A pound on top of dollar notes
Source: Bloomberg

Sterling slides overnight

The pound has tumbled against the dollar ahead of the growth figures from the US at 1.30pm (London time) that will be the acid test for the US recovery.

Before the US growth figures are released, the UK mortgage approvals announcement at 9.30am will be the focus of the morning trading session. The market is expecting a slight increase from 59,000 in November to 60,000 in December. The UK property market is beginning to cool off, and a soft figure will put pressure on the pound.

As I previously stated, the US is in the lead when it comes to which country will increase interest rates first, and the advance GDP reading will paint a clearer picture. The consensus is for a reading of 3% for the final quarter of 2014, and should expectations be met it will trigger short-term dollar buying.

After making a number of unsuccessful attempts to break through the $1.52 level during the week, the pound drifted back to its previous support level of $1.50. It is currently trading near the middle of this range and the bias is to the downside. There has been consolidation in the $1.5080 area, and the 200-hour moving average is acting as resistance at $1.51. If the level is held then $1.50 will be in sight.

Spot FX GBP/USD

Euro eyes CPI data

EUR/USD is holding up relatively well when you consider how much money is being withdrawn from Greece at the moment. Discussions over Greek debt will begin today, and this will be the crunch moment for the indebted nation.

Syriza’s rise to power was on the back of promises to undo austerity and unburden the people of Greece from the enormous national debt that is weighing over the country. The market is afraid that Greece will threaten to default on its obligations if it doesn’t receive a large write-off of its outstanding loans, and this will spark a fresh round of selling in EUR/USD.

The eurozone flash CPI will be revealed at 10am and the market is expecting a reading of -0.5%; this compares with December’s reading of -0.2%. The swing to deflation at the end of last year pushed Mario Draghi into the quantitative easing scheme this month, and a further decline in the CPI will keep the pressure on the euro.

EUR/USD is currently trading at $1.1350, and any moves higher will run into resistance at $1.14. The initial downside target is the 100-hour MA of $1.1305, and if the metric is punctured then $1.12 will be brought into play.

Spot FX EUR/USD chart

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