EUR/USD tests support below $1.12

Once again dollar strength has seen both EUR/USD and GBP/USD drift lower.

Pound coins on top of a dollar note
Source: Bloomberg

GBP/USD below 100-DMA

The well-worn path of GBP/USD's move lower has been resumed as the currency markets revert to anticipating the faster recovery in the US while the UK struggles to resist the negative pull of the eurozone on its door step. The fact that currency markets are still factoring in an interest rate rise for the US in the third quarter is being increasingly questioned. 

This year seventeen nations have cut interest rates, and although unchanged it was widely anticipated that Australia would have to cut for a second time this year. As good as the US economic data might be, it is hard to believe that it will be able to shrug off the negativity of so many different global regions.

The Bank of England governor Mark Carney will today be testifying in front of the Treasury Select Committee, discussing the latest currency probe. This is unlikely to focus on the BoE’s current actions but the legacy issues from previous decades. As such, it is doubtful that Mark Carney will say too much that might disrupt currency markets.

GBP/USD lasted fewer than 24 hours above the 100-day moving average and has again reverted to selling off. A gradual move towards the $1.50 level can now be envisaged.

Spot FX GBP/USD chart

EUR/USD drifts lower

Now that the Greek short-term financing conundrum has been resolved, the eurozone can focus on the day-to-day running of the region and how its constituents are faring. Yesterday’s manufacturing PMI data painted a very mixed picture, with Spain and Germany continuing to see growth while Italy and France struggled.

One problem with refocusing back on the eurozone is that there are still issues with many of the member nations. France continues to look like a major problem waiting to happen. To put this into context, when your manufacturing PMI growth comes in lower than Greece questions need to be asked.

As EUR/USD has now moved below $1.12, it has the distinct look of a currency cross setting itself up to test the recent lows set in January.

Spot FX EUR/USD chart

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