Forex snapshot

EUR/USD holds above $1.25 ahead of the Bundesbank and Mario Draghi updates, while GBP/USD slips as traders wait to hear from a Bank of England member.

ECB headquarters
Source: Bloomberg

Euro holds above $1.25

The single currency has managed to stay north of $1.25 in the overnight trading session, although it has been drifting lower as European trading gets underway.

The euro may extend its gains versus the US dollar as we are expecting an update from the Bundesbank at 11am (London time). Germany has been a strong opponent to full blown quantitative easing from the European Central Bank. Last week Germany eked out 0.1% of growth in the third quarter, so it is unlikely the country will change its tune and this could bolster the euro.

Mario Draghi is due to speak at the committee on economic and monetary affairs in Brussels at 2pm (London time). Mr Draghi is open to the idea of using full-on QE but I feel he won’t play that card until he absolutely has to. The latest CPI and GDP figures for the region came in at 0.4% and 0.2% respectively, while analysts had predicted readings of 0.4% and 0.1%. These stats do not warrant a round of QE, and if Mr Draghi suggests he is going to wait and see the euro could move higher.

The initial target for the euro is $1.26, and then the 50-day moving average of $1.2632 will be in focus. If that is cleared dealers will have their eye on $1.27. A move below $1.25 would put the 200-hour MA of $1.2460 in play, and if that is punctured then $1.24 will be on the radar.

Sterling slips below $1.57

The pound has dropped below the psychologically important $1.57 mark as traders prepare to hear from Andy Haldane of the BoE at 9.30am (London time).

Mr Haldane will deliver a speech at the Royal Society of Medicine this morning. Last month he stated that interest rates could stay low for longer than expected, which lead to a decline in sterling. Since then, Mark Carney has also hinted at rates remaining unchanged until well into 2015, and traders have been penciling in an interest rate increase in autumn of next year. If Mr Haldane holds his dovish views the pound could be under fire again.

We are not expecting any economic announcements from the UK today; the US will reveal Empire State manufacturing and industrial production at 1.30pm and 2.15pm (London time). The greenback has been running out of steam lately, so soft numbers could push the pound higher.

The $1.56 level is the first target for the pound. The level was breeched briefly on Friday, and if it is breeched again $1.55 would be in the crosshairs. On a daily basis the pound is oversold so a pullback is likely. If $1.57 is taken out, the 100-hour MA of $1.5777 will be the next level to watch and beyond that, $1.58.

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