Forex snapshot

The post-independence bounce in the pound is over and done with, while the euro is still struggling to recover from a comprehensive drubbing on Friday.

Chris Beauchamp ChrisB_IG
Market Analyst, London

2014-09-22T09:01:00+0100

Source: Bloomberg

Pound’s bounce comes to an end

Both $1.64 and $1.65 proved to be too much for GBP/USD on Friday, and this morning’s modest rise has so far been capped at the 20-daily moving average once again.

There is relatively little on the sheet for the pound in terms of UK economic data this week, although Bank of England governor Mark Carney is speaking on Thursday. There will be plenty of US data, hwoever, including PMIs, GDP and the Michigan confidence reading. Thus the theme of a strong dollar will still be dominant, with the US currency having the edge over others at present, particularly since worries over Chinese growth will diminish risk appetite.

As mentioned, today’s move has so far been halted by the 20-DMA, even if the daily relative strength index and MACD point to ongoing strength among buyers. Any move upwards targets the level $1.6430, where Thursday closed and Friday opened, and then on to the Friday high around $1.6530.

The downside scenario would involve an attempt to break $1.6250, and then the $1.62 level.

Spot FX GBP/USD chart

$1.2830 holds for EUR/USD

EUR/USD has pulled itself from oversold levels, as buyers come in around $1.2830 once again.

There was no French downgrade last week, removing one possible area of worry, and the focus now shifts to the plethora of eurozone data out this week. It all begins tomorrow with French GDP and services and manufacturing PMIs for France, Germany and the broader eurozone. Wednesday follows with German IFO, which will be crucial given the focus on the German economy at present. However even good data might not do too much for the euro, given the current strength of the US dollar. The broad takeaway from last week’s Federal Reserve meeting was fairly bullish for equities, but Janet Yellen’s view that the data will determine the course of rate hikes means that more strong numbers on the US economy will boost the dollar as interest rate expectations evolve.

$1.2920 and $1.2970 are the upside targets, with the 20-DMA at $1.30 also being a crucial area to watch out for. The last attempt to break this moving average, in August, was defeated, so while the daily RSI is turning higher any bounce may be short-lived.