Dollar eases back

This morning has seen the dollar continue to ease against both the euro and sterling.

GBP/USD

ECB conference offers few surprises
Yesterday’s European Central Bank (ECB) press conference was the most interesting we have seen in years. Unfortunately, this was due solely to the young protestor who stormed the stage and threw confetti around before being carted off. On the more mundane matters, interest rates remained unchanged and the general consensus of letting existing policies run was very much the mood.

Never too far away from the sentiment was the Greek finance minister’s latest escapades. Yanis Varoufakis is currently over in the US talking to both Barak Obama and also lawyers specialising in sovereign debt restructuring. The debate around the trading floors is currently revolving around what chance there is of Greece defaulting. This might not be a foregone conclusion, but nor can we afford to dismiss it out of hand.

Any bounce seen in EUR/USD continues to be viewed as a selling opportunity, and institutions are still targeting sub-parity levels over the next six months.

GBP/USD climbs higher despite uncertainty
The last three trading days have seen GBP/USD add almost 250 pips as it has once again bounced. Like EUR/USD, any decent correction higher is still being viewed as a selling opportunity. The UK is now just three weeks away from a general election and the Conservative and Labour parties are still neck and neck.

The only certainty at the moment is that no party looks able to create a clear majority on their own. This sets the template for a government with limited strength and the very real possibility of a) a second election this year or b) another election within the next two years. With this as the back drop to sterling, it is difficult to believe that currency markets have fully factored this in.

The $1.500 level continues to be a barrier as moving averages continue to fall and are looking like converging below this level. At the moment, the relative strength indicator is nearing overbought territory. This bounce looks to be a better level to sell into.

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