Forex snapshot

Alastair McCaig looks at how upcoming announcements and economic data could affect the EUR/USD and GBP/USD pairs.

EUR/USD continues to drift ahead of ECB announcement

Currency traders have knocked over 300 pips off the EUR/USD following last month’s comments from Mario Draghi, who mentioned that he would take action in June to combat the strength of the euro.

The last five trading days have seen the EUR/USD rate dip below the $1.36 level in anticipation of events on Thursday. The market has factored in that there will be a change to the ECB base rate, dropping from 0.25% down to 0.1%. This, to an extent, is merely window dressing and it will be the add-on actions that will gain the majority of currency trader’s focus. Not that market watchers will have needed any more convincing, but the poor German manufacturing figures are just the latest reminder of why action is required.

GBP/USD bounces off the 100-day moving average

The pace of the UK’s economic recovery has, over the last six months, outpaced its US counterpart and subsequently seen the strength of sterling improve against the US dollar. From the July 2013 lows the GBP/USD rate has added over 2000 pips by mid-May and, perhaps, has deserved the corrective slide of the last couple of weeks.

Once again the focus will be on Thursday’s UK Monetary Policy Committee rate decision statement and Friday’s US non-farm payroll figures. These two pieces of economic data will go a long way to dictating the direction of GBP/USD for the rest of the month.

In the short term the 100-day moving average should offer further support, and with the relative strength index already at the low end of the range an eventual attempt at breaking the five-year highs, around the $1.70 level, would be expected.

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