Forex snapshot

After aggressive selloffs yesterday, both GBP/USD and EUR/USD will again have to weather economic data that could trigger further moves.

Euro and dollar notes
Source: Bloomberg

EUR/USD struggles to break above $1.2790

Today will see European Central Bank president Mario Draghi bookending the trading day with speeches at 8am and again at 7pm (London time). The influence his word is having on EUR/USD has steadily declined as it has become increasingly obvious that he is seriously restricted as to what actions he is able to take. It is assumed that with UK inflation coming in lower by 0.2%, there will be similar pressures on the already low eurozone inflation rate tomorrow.

Yesterday saw EUR/USD drop by almost 100 pips but still remains some 140 pips clear of its 12-month lows. The EUR/USD pair was already heavily oversold ahead of this week, and having seen 1200 pips dropped over the last three months was in desperate need of a correction. For the time being it looks unlikely to be able to break above last week’s high of the $1.2790 region.

GBP/USD dropped by 180 pips

Yesterday saw GBP/USD’s rate collapse following the release of inflation figures 0.2% lower than expected. Fortunately this did not trigger the need for the Bank of England governor Mark Carney to write a letter to the chancellor explaining why inflation was over 1% lower than its target. One thing that the markets assumed on the back of this is that the timeline for UK interest rate rises has pushed a little further into the second half of 2015. 

Only a couple of months ago today’s UK average earnings would have been the most important information out, but the collapse of confidence in Germany and the eurozone will be weighing on the thinking of the Monetary Policy Committee members.

Yesterday GBP/USD collapsed by over 180 pips during the day, smashing through the $1.60 level and setting new 12-month lows. This has seen the currency pair move back into oversold territory but the numerous pieces of US economic data out today could easily trigger bigger moves. The risk to the downside still remains.

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