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Dollar overshadows markets

The dollar is dominating the currency markets as the prospect of a rate rise in the US is growing.

A dollar and a sterling note
Source: Bloomberg

Sterling slides after Carney’s concerns

GBP/USD has taken a tumble again after Mark Carney warned the UK could slip into a 1930’s style of deflation. The rate of inflation in the UK is at a record low of 0.3%, and Mr Carney has warned that it could swing to negative territory. The UK’s largest trading partner is the eurozone – which is already encountering deflation – and weak demand from continental Europe is weighing on the British economy.

The currency pair has been in a downward trend for the past two weeks, and we are not seeing any sign of this trend changing. The only economic data we are expecting from the UK today is the construction output at 9.30am (London time). The market is expecting a reading of 1.4%, and we will see short-term selling if estimates are missed.

The $1.49 level is acting as resistance and the support at $1.48 is the downside target. GBP/USD is oversold on a daily basis and this may lead to a short-term pullback, a move above $1.49 will make the important level of $1.50 the target. 

Spot FX GBP/USD chart

Euro still struggling

EUR/USD has been trading within a tight range overnight, and even though the pullback in the dollar has pushed up the single currency it is still locked in its downward trend.

We are not expecting any economic announcements out of the eurozone today, but the ongoing political fight between Greece and Germany will provide volatility for the market. The worse the relationship between the nations becomes the more pressure it will put on the euro.

The euro has been in decline versus the dollar since May last year, and any short-term rallies will provide good selling opportunities.

EUR/USD is receiving support at $1.06, and if this level is punctured it will bring the support at $1.05 into play. If $1.06 is held the previous support at $1.07 will become the target.

Spot FX EUR/USD chart

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