100-DMA offers EUR/USD support

EUR/USD and GBP/USD traders will be keeping their eyes on a number of macroeconomic reports released this week.

100-DMA offers EUR/USD support 

EUR/USD continues to lull below the $1.38 level, chastened from last week’s comments by Mario Draghi.

The threat of action in June continues to weigh on the mind of currency traders as EUR/USD continues to stagnate. Currently, the 100-day moving average appears to be offering some sort of support, while traders continue to assess the likelihood that Mario Draghi will carry out his threat of taking action to weaken the euro.

Although we have been down this road before, it does appear that this time it could be for real. The dependence that Germany has had on a weak currency has seen its export driven economy begin to squeak, as it remains resolutely strong against the US dollar.

So far 2014 has seen a steady fall in the German ZEW economic sentiment indicator. This morning’s figure is only likely to confirm this trend, adding to signs that action rather than talk is likely to come in June.

As David Madden pointed out yesterday, short-term pressures from Ukraine and looming eurozone flash gross domestic product figures should cap any upwards momentum. Additionally, the relatively tight range EUR/USD has been in this week could remain until Thursday. 

Spot FX EUR/USD chart

GBP/USD treads water ahead of BoE’s inflation report

Breaking the $1.70 level was a step too far last week, but will the Bank of England’s inflation report help GBP/USD break through?

Last week’s effort to hit new highs, last seen in August 2009, ultimately ended in failure but for how long?

The major driving force that has seen the pound continue to strengthen against the US dollar, has been the pace the UK economy has recovered in comparison to the US. The speed of recovery has taken everyone by surprise and called into question the expected time line for change.

Wednesday’s Bank of England inflation report will give currency traders an opportunity to gauge Mark Carny’s latest thinking. Specifically, traders will want to see how close the BoE is to bringing forward rate rises to the first quarter of 2015, as suggested by the CBI on Monday.

The long-term stability created from the BoE’s decision, to hold interest rates so low for so long, has been one of the backbones to the UK’s recovery. Raising rates will have to be handled in a delicate way, with such a large proportion of the UK indebted with mortgages. The knock on effect of any rate rise would be a reduction in UK retail spending.

The hourly chart for GBP/USD has seen it break through the 50-,100- and 200-hour moving averages, and move into oversold territory on the relative strength index. So far in May, any intraday dips below $1.6840 have enticed the buyers back into the market, and this looks to remain a key level. 

Spot FX GBP/USD chart

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