Dollar drives higher ahead of Fed meeting

The dollar has reclaimed its throne as king of the currency markets while traders await the Federal Reserve meeting at 7pm (London time).

Dollar and sterling currency
Source: Bloomberg

Pound has pulled back

The pound had its day in the sun yesterday as the jump in UK GDP pushed it through the $1.52 mark. However, GBP/USD is still in the downward trend that has been in place since July. A lack of economic announcements from the UK today is going to leave the pound at the mercy of the greenback, and the Fed meeting tonight will be the highlight of the trading session.

The market is not expecting any change to the interest rate, and as always the language that the Fed uses will be crucial. In December, Janet Yellen stated that rates would remain unchanged for at least the next two meetings, and the US central bank is ‘patient’ when it comes to a rate rise. The US is still ahead of the UK in the race to increase interest rates and this will keep the pound under pressure.

The $1.52 level is acting as resistance and should this level be held the 200-hour moving average of $1.5111 will be in sight. If that metric is punctured $1.50 will be brought into play. If $1.52 is cleared it will then become support and the $1.5270 region will be the target.

Greece hangs in the balance

The fate of Greece is still a major issue for the eurozone, and the latest comments out of Germany indicate it is ‘relaxed’ about the possibility of the indebted nation leaving the currency union. The new Athens government is trying to gain leverage over Brussels in relation to its outstanding debt obligations, but no ground has been gained so far.

The major pullback in EUR/USD yesterday injected some much needed confidence into the single currency, but it is not out of the woods yet. The medium-term trend highlights a downward move, but this could be the beginning of a short-term bounce. On a daily basis EUR/USD is out of oversold territory and it is currently above both the 50- and 100-hour moving averages which paints the currency in a positive light.

The $1.14 level is acting as resistance and should this level be cleared it will then act as support and the 200-hour moving average of $1.1456 will be the target. EUR/USD is hovering above the 100-H MA at $1.1327, and if this level is broken it will bring $1.12 into play.

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