Forex snapshot

Weak eurozone economic data keeps pressure on EUR/USD while GBP/USD awaits UK manufacturing and US trade balance releases.

Euro/dollar currency
Source: Bloomberg

EUR/USD under pressure

Ahead of tomorrow’s important European Central Bank rate decision, Germany has posted truly awful factory orders. Expected to show growth of just 0.5%, it came in showing that German monthly factory orders had shrunk by 3.2%. EUR/USD will have seen more pressure heaped onto it keeping it below the $1.34 level.

Although a weaker euro will be welcome news for many of the export-driven economies around the eurozone, the fact that this is happening due to disappointing economic data or because it is being driven by the US is becoming an increasingly worrying trend. Once more, tomorrow’s ECB rate decision is unlikely to see a change before the targeted long-term refinancing operation has started. It is maybe unfair to judge the actions taken by the ECB, however a criticism of its timetable appears just.

Short-term support could be found at $1.38

Over the course of July GBP/USD dropped by 260 pips as the markets, guided by the flow of economic data out of both the US and the UK, altered their perception of when each country was likely to start increasing their interest rates. Although the consensus is still that the UK will move first, the lead time they will have before a US increase has shrunk.

The action we have seen in the last 48 hours looks to be a correction to the heavily oversold position that GBP/USD has found itself in. However, a continuation of the downward pressure looks likely to remain. Having broken through both the 50- and 100-day moving averages, the 200-day support now around $1.3730 looks to be too much of a stretch and $1.38 could offer the short-term support.

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