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USD extends its gains

The dollar is continuing on last week’s bull-run that was sparked due to the division that exists in the Federal Reserve over an interest rate hike.

Pound sterling
Source: Bloomberg

Euro edges lower
EUR/USD is close to its lowest level in one month due to the strength of the greenback. As I stated previously, the sentiment in the market has shifted towards the possibility of an interest rate rise in the US sometime between June and September. The US will announce the beige book update on Wednesday at 7pm, and this will give traders a better idea of how the US economy is faring. Even though the economic indicators have begun to show some weakness in the recovery, the US central bank is keen to move away from ultra-low interest rates this year, and this will keep EUR/USD in its downward trend.

The issue of Greece is still bubbling away in the background, and it will resurface at the back-end of this week when the indebted country will be required to propose a series of reforms to its creditors. The market is expecting the reforms to be accepted, but that is not to say that the political wrangling will go smoothly, and this will keep the pressure on the euro.

The first target to the downside is $1.05, if that mark is taken out the recent low of $1.0462 will be in sight. Acting as resistance is $1.06. Beyond that, traders will look to the 50-hour moving average of $1.0620, and if that mark is cleared the next level of resistance will be the $1.0670-80 region.

EUR/USD

Political uncertainty punishes pound
We are less than one month away from the UK general election and the outcome is still very much pointing to a hung parliament. The markets despise uncertainty, and without a strong political party to take charge post-election traders are fearing for the worst, and GBP/USD is paying the price for it. This morning GBP/USD dropped to its lowest level since May 2010 – which coincided with the last UK general election, and in a similar vein, the pound was under attack for fear of a hung parliament.

Tomorrow the UK will reveal the latest consumer price index (CPI) data, and Mark Carney has previously voiced his concerns about the UK following the eurozone down the deflation route. Mr Carney has also suggested he would be open to loosening monetary policy should it be required, and disappointing CPI figures will drive GBP/USD even lower.

The initial target to the downside is $1.46, and if that level is punctured again the low of $1.4566 will be the target. If support at $1.46 is held then the 50-hour moving average at $1.4663 will be the target, and then $1.47 will be brought into play.

GBP/USD

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