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Dollar continues to ease back

Both EUR/USD and GBP/USD continue to edge higher, moving closer to overbought territory.

Pound coins and dollar
Source: Bloomberg

Bear trend remains in GBP/USD

GBP/USD's rate continues to bump its head against the $1.5000 level that was previously support and is now acting as resistance. The longer-term bear trend in GBP/USD is not under threat, but it will be interesting to see if the sellers come in before the moving averages move closer to the $1.5200 level or at this psychological one.

The last couple of days saw UK inflation collapse down to 0%, and the period of deflation predicted by market observers almost looks inevitable. The fly in the ointment of this theory has been Saudi Arabia’s military intervention in Yemen, as it has felt the need to help the struggling ruling party. This has had the unavoidable effect of squeezing both Brent and US light oil prices higher by over 4%. A sustained period of higher oil prices would help keep inflation here or even see it rise.

The Bank of England has said nothing that would indicate that it is about to intervene; however, with the UK general election starting in earnest there is always the possibility of politicians muddying the waters. The bear trend remains intact and higher levels continue to offer more attractive levels to sell at.

GBP/USD chart

EUR/USD eyes $1.1200

As EUR/USD’s level creeps higher it has edged closer to the 50-day moving average at $1.1200, and also moving into overbought territory on the relative strength index. This still looks like a respite in the bearish sentiment that has dominated EUR/USD rather than a change in the markets thinking. The economic data that has been coming out of the eurozone has not given investors any reason to believe that a recovery is back on track. However the sentiment data from the eurozone does shown that the business sentiment is now more confident undoubtedly due to the start of the European Central Bank beginning its own QE scheme.

This will see equity markets supported and could well see the flow of funds to small and medium sized businesses improve. As is always the case with the eurozone not everyone is happy and the Greeks continue to cause unrest with their aggressive haggling over the severity of austerity in the country and how far they need to go in order to legitimize the continuation of the bailout. A consequence of this uncertainty has been the increase of funds leaving Greek banks and need for the ECB to top up its capital adequacy levels.

These current rises in EUR/USD are offering more attractive levels to sell into and the bearish trend remains in place.

EUR/USD chart

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