Politics hangs over the FX markets

Political uncertainty in both Greece and the UK are holding back GBP/USD and EUR/USD.

Source: Bloomberg

Greek countdown continues
The euro is pulling back losses from its overnight session – but the possibility of a Greek default still hangs over the single currency.

The Syriza party are still at loggerheads with the country’s creditors and the indebted nation has to make repayments to the International Monetary Fund on the 1 and 12 of May. Greece has a track record of talking tough right up until the deadline but eventually a compromise is reached. The harsh rhetoric out of Athens between now and then will keep pressure on EUR/USD.

Mario Draghi stated that Greek banks will remain eligible for emergency funding while they hold acceptable collateral, such as Greek government bonds, but if Athens were to renege this would be disastrous for the country. The bond markets are increasingly pricing in a default but it is not having the same impact on EUR/USD.

EUR/USD has been in an upward trend for the past week but additional gains will be difficult to achieve while political uncertainty hangs over Greece.

The 50-hour moving average is providing support at $1.0770 and the resistance at $1.08 is the target. If that is cleared the $1.0830 region will be brought into play. The 50-day moving average at $1.0865 seems out of reach for any rallies. A drop below the 50-hour moving average (MA) will bring $1.07 into sight, and if that mark is punctured the $1.0630/25 area will be on the radar.

Election erodes sterling’s strength
The pound’s move above $1.50 on Friday was short lived and it has been trading sideways overnight, and with no economic announcements from the UK or the US today, trading is expected to be subdued. As Alastair McCaig stated, the strong likelihood of a hung parliament in the UK election next month is only going to make matters worse for GBP/USD.

The financial markets have no time for uncertainty and if Downing Street is left without a majority leader in a few weeks the pound will have additional pressure put on it.

The mild tick-up in US core inflation last week is ensuring that the US is extending its lead over the UK in the race to raise interest rates. That will keep GBP/USD in its long-term losing streak.

GBP/USD is providing support at $1.4952, and a drop below it will put $1.49 in sight. The next level to watch below that is $1.48 – which coincides with the 200-hour moving average. Any moves higher in GBP/USD will encounter resistance at $1.50, and if that mark is cleared the recent high of $1.5054 will be the target.

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