Overbought dollar giving a little back

Both GBP/USD and EUR/USD remain in overbought territory but have seen a little dollar weakness readdressing the imbalance.

Pound coins and dollar note
Source: Bloomberg

GBP/USD oversold

With just over twenty-four hours until George Osborne announces the latest UK budget, GBP/USD has retraced some of its recent falls. The last couple of weeks have seen aggressive dollar strength and GBP/USD had moved heavily into oversold territory. Regardless of the chance that the Federal Open Market Committee might bring interest rate rises forward to June/July, the one-directional move was always due for a correction. The question that really remains is, how long before it starts to selloff again?

The temptation for traders to take some of their short profits off the table while waiting for both the UK and the US to announce major economic statements will no doubt see this correction stretch throughout the day.

Although the current $1.4780 level remains oversold it is hard to see GBP/USD breaking back above $1.5000, and this looks likely to be the top of any further bounce.

Bearish mindset on euro unlikely to change

So far this week announcements coming out of the eurozone have been limited. Arguably, with the way things had been developing with Greece less is more. As EUR/USD moved into aggressively oversold territory a retracement was warranted but any bounce is likely to be short-lived as traders bearish mindset on the euro is unlikely to change in the short-term.

Institutional notes on the currency pair have been updated in the run up to the FOMC statement on Wednesday afternoon, and fresh targets have been posted. Deutsche Bank outlined its target of $0.90 in EUR/USD in 2016 and down to $0.85 in 2017. Overnight ING also posted its targets with a call for parity in EUR/USD during Q2 and a fall down to $0.95 by the end of the year.

Any bounce in the currency pair is likely have limited upside and a limited time frame. Unless the FOMC disappoint the market by failing to change the ‘patient’ stance, this dip could just be an attractive bounce to short.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen. 79% van de retailbeleggers lijdt verlies op de handel in CFD’s met deze aanbieder.
Het is belangrijk dat u goed begrijpt hoe CFD's werken en dat u nagaat of u zich het hoge risico op verlies kunt permitteren.
CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen.