Dollar drops ahead of Fed

GBP/USD and EUR/USD are both in favour with traders this morning as dealers await the Federal Reserve statement later.

GBP/USD
Source: Bloomberg

Euro edges higher
EUR/USD is pushing higher ahead of the Federal Reserve meeting statement tonight at 7pm (London time). The underwhelming economic releases from the US lately has convinced the market that tonight’s statement will be on the dovish side.

Yesterday’s expected drop in the Conference Board consumer confidence (95.2 in April from 101.4) highlights how fragile the US recovery is. When you factor in the disappointing non-farm payrolls and consumer price index (CPI) data this month, it is clear why the US dollar has been in retreat.

EUR/USD was also given a boost by the news that the Greek finance minister Yanis Varoufakis has been taken off the front line of the nation’s negotiating team. Mr Varoufakis has rubbed up many of the country’s creditors the wrong way, and with him taking a back seat the country stands a better chance of brokering a deal over its debt.

EUR/USD is receiving support from the $1.0945/50 area, and if this level is held the resistance at $1.10 will be the target. If that mark is cleared, then $1.1044 will be on the radar – a level not seen since the Fed meeting in March. A drop through the $1.0945/50 region will make $1.09 the next target, and then the 100-hour moving average at $1.0860 will be the next level of support.

EUR/USD

Pound is pushing up
Sterling is going from strength to strength, and the way the pound shrugged off the worse than expected first-quarter GDP numbers just shows how much of this upward move in the GBP/USD is driven by the weak dollar. As Alastair McCaig stated, the UK general election is creeping up and all signs are pointing to no overall majority, but it has failed to stem the rally in GBP/USD.

The Fed statement tonight will be the focus of the trading session, and traders will try to ascertain when will rates rise in the US. The update from the US central bank last month was a touch on the dovish side, but the minutes showed that there was a division within the Fed. Traders are anticipating rates to increase sometime between June and September, and the latter is looking more likely given the soft spell of economic indicators from the US recently.

At the moment, $1.5340 is providing support and the initial target is $1.54. A move through that puts the 200-day moving average of $1.5495 on the radar – GBP/USD hasn’t traded above the 200 DMA since August 2014. If $1.5340 is punctured the $1.53 will be the first target, and then support in the $1.5220 area will be in play.

GBP/USD

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