Forex snapshot

Even the absence of US traders wasn’t enough to see sentiment improve for EUR/USD, while GBP/USD continues its mini revival. 

US dollar and Sterling coin
Source: Bloomberg

Euro heavily oversold

Yesterday was a quiet day of low volumes because of the US holiday, but even with this EUR/USD was unable to eat away at any of its losses from the previous months. In the last four months EUR/USD has dropped by over 800 pips as worries over the eurozone have persisted. The inability of the German economy to continue making up for the deficit in other areas is finally beginning to show.

EUR/USD is now heavily oversold and has spent much of the last four months being oversold or flirting with it. With Thursday’s important European Central Bank interest rate decision and the comments of Mario Draghi to come, it is perhaps no wonder currency traders are pensive.

Having already fallen 800 pips a correction is due, but a break below the $1.31 level looks more likely in the short term.

Cable unable to hold on to gains

Europe’s woes are beginning to drag the UK down too. GBP/USD traders are just as likely to debate what the Bank of England may or may not do on Thursday, as they discuss what Mario Draghi can and can’t do. As optimistic as his sentiment was when he spoke a week ago at Jackson Hole, the subsequent week has seen German reticence towards stimulus before the required austerity.

This morning better-than-expected construction figures are a break from the norm, with yesterday’s slower-than-expected growth in manufacturing PMI a more familiar sight.

GBP/USD has shown some desire to make amends for the previous couple of months fall. Yesterday saw cable pop back above the $1.66 level, but all this good work has been undone today following the release of the latest YouGov poll on Scottish independence that has shown the gap now brought back down to just six percent having previously looked untenable.

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