US remains weak

The dollar has dropped to a four-month low as traders no longer foresee a rate hike in June. 

Dollar and pound currency
Source: Bloomberg

Euro retreats after Draghi's comments

The euro is offside this morning after Mario Draghi stated yesterday that the quantitative easing scheme will stay in place as long as needed. The stimulus package by the European Central Bank has been in place for only few months, and when you consider how long the Federal Reserve had its QE programme in place, it is fair to say the ECB’s bond buying scheme will be around for the foreseeable future.

The upward move in EUR/USD over the past two months has been mostly dollar driven, and the dollar basket is now at its lowest level in four months as traders are less fearful of a US rate rise in June. The recent jobs data from the US has been strong, but the growth rate is still relatively weak, and the US consumer is more likely to save than spend.

In the short-term the strength of EUR/USD is unlikely to be stopped, as dovish comments from Draghi and strong jobless claims numbers from the US caused a minor pullback in the currency pair. The $1.14 level is acting as resistance — this area was a major level of support in February, and if it isn’t breeched a pullback to $1.1340 is on the cards. A move below that will bring $1.13 into play but a move back above $1.14 will put $1.15 on the radar.

Sterling still going strong

GBP/USD is just off the high for 2015 as sterling goes from strength to strength. Traders have shrugged off the lower growth forecasts from the Bank of England and virtually ignored the impressive jobs data from the US, and GBP/USD has been in an upward trend over the past two months. The post-election rally has been exceeded and fresh highs for the currency pair have been printed this week.

The UK construction output and University of Michigan consumer sentiment report at 9.30am and 3pm (London time) respectively. They will provide an update on how both economies are performing. The bias remains in favour of the pound, and traders are very quick to punish the dollar for soft economic announcements.

On a daily chart GBP/USD is overbought, and this could trigger a pullback, which would bring $1.57 into play. Below that traders will look to the $1.5635 region. The $1.5815 mark was reached yesterday and it is still the upside target.

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