Dollar decline lifts euro and pound

A pullback in the greenback has given a minor boost to GBP/USD and EUR/USD.

A pound and dollar note
Source: Bloomberg

GBP/USD trades sideways

Trading volumes and market volatility are expected to remain muted throughout trading session as are we are not expecting any major economic announcements from the UK or the US. Thus no clear directional bias for GBP/USD is anticipated as traders elect to sit on the fence.

Tomorrow’s CPI data from the UK will spur volatility, and the market is expecting a reading of 0.7% in December, which is a big drop from November’s 1% report. If market expectations are met it will hammer home the point that the Bank of England is not going to increase rates in the first half of this year, and this will be music to the bears’ ears.

The 50-hour moving average is providing support at $1.5121, and a move through this would turn support into resistance with a downside target of $1.50. The daily relative strength index shows it is still in oversold territory, which may indicate a bounce, but any move higher will run into resistance at $1.52.

EUR/USD still on tenterhooks

As I stated last week, the decline in the EUR/USD is showing no sign of letting up. The market is expecting an uneventful session as no economic indicators out of the eurozone are scheduled.

The speculation that the European Central Bank will embark on a quantitative easing scheme is still circulating, and the report last week which stated the eurozone central bank is considering buying up to €500 billion worth of investment grade bonds has fanned the QE flames. The European Court of Justice ruling on Wednesday will be crucial in deciding whether such a stimulus package will go ahead or not.

The market is anticipating additional easing from the ECB and that is why EUR/USD’s downward trend has accelerated since the start of the year.

EUR/USD is oversold on a daily basis and this may trigger a correction, but $1.19 will be a difficult barrier to break through. The currency pair has held above $1.18 this morning, but if it were to be breeched it would put $1.17 on the radar. 

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