Dollar drives higher

The dollar is making headway again as the European Central Bank's frontloading weighs on the euro, and the Bank of England minutes has traders nervous.

GBP/EUR
Source: Bloomberg

Euro sub $1.11
​EUR/USD is in the red again as the momentum from yesterday’s selloff keeps driving the currency pair lower. As I stated yesterday, the decision by the European Central Bank (ECB) to front-load its government bond buying scheme in May and June is behind the downward move.

EUR/USD was finding support in the $1.1120 region, but it pushed lower in quick succession this morning when the German PPI came in at 0.1% in April, meeting expectations.

The official line from the ECB yesterday was that bond trading volumes are thin during the summer period, and it is easier to ramp up the purchases now rather than later. There is also a feeling that the quantitative easing (QE) scheme has yet to fully trickle down to the economy and by speeding up the asset purchase programme, the ECB is hastening the recovery of the region.

The force of the ECB is driving EUR/USD lower, and the support at $1.10 is the downside target, and a move through it will put $1.09 in traders’ minds. The previous support at $1.1120 will be the initial target to the upside, and then $1.12 will be brought into play. 

Sterling sinks again
The pound is under pressure again after the UK dripped into deflation yesterday, and the Bank of England (BoE) will reveal the minutes form the latest meeting at 9.30am (London time).

The BoE has recently lowered its growth forecasts for the UK economy, and now the country is in deflation, it will be a surprise if any members are in favour of cutting interest rates. Mark Carney has suggested in the past he would consider cutting rates in necessary, but we would need to a see a prolonged period of deflation before that is a possibility.

The Federal Reserve will announce its minutes at 7pm (London time), and traders will be listening out for clues as to when interest rates will rise. The US central bank hasn’t ruled out a rate rise in June, but most dealers are pencilling in September for an interest rate hike.

We’re seeing $1.55 act as resistance for GBP/USD, and if that level is held then $1.54 will be the target to the downside. A move back move $1.55 will being the resistance at $1.56 into play. 

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