Forex snapshot

Currency traders wait to see the latest UK inflation figures and later in the morning ZEW economic sentiment figures.

Mark Carney
Source: Bloomberg

GBP/USD eyes $1.57

The latest UK inflation figures are due to be released this morning and currency traders will be debating how close the Bank of England governor Mark Carney is to having to write a letter to chancellor George Osborne. Low UK inflation levels are, for the time being, not necessarily a bad thing as the last few years have seen the spending power of the UK populous dented, with weak average earnings increases. When looking at the inflation rate it is also worth noting that this next quarter in the run up to Christmas is the most important for the both food and clothing retailers, and as such even more aggressive price wars could materialise.

As highlighted by my colleague David Madden yesterday the break below the $1.57 level could be a psychological one, and a squeeze below the current $1.5650 levels could take GBP/USD all the way down to $1.55.

EUR/USD awaits German ZEW

Today’s German ZEW economic sentiment figures will also be watched closely, as last month’s negative figure was the first for the country in almost two years. Germany is still seen as the nation most likely to lead the rest of the eurozone out of recession and an analytical and institutional backdrop of negativity would be a blow to the process. Yesterday’s speech by European Central Bank head Mario Draghi did breath life back into the EUR/USD, adding almost 100 pips to the beleaguered currency cross. Subsequently overnight Asian currency traders have wiped out over half of this move. 

The 50-day moving average still appears to be a barrier that EUR/USD has neither the heart or inclination to break through. It is the same old story but US dollar dominance still appears to be the trend. Only a break above the $1.26 level and or the 50-DMA would give reason to re-assess our negative outlook.

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