Dollar is back on top

The dollar has resumed its dominance in the currency markets as the division between Federal Reserve members sends the currency higher.

Euros and dollars
Source: Bloomberg

Greece is still an issue
The euro is still feeling the pinch from Greece even though the indebted nation repaid the International Monetary Fund yesterday. Athens now has five working days to come up with reforms that are acceptable to its creditors. This situation is all too common place within the eurozone, whereby Greece survives from deadline to deadline, and as soon as the country receives a confidence boost it is quickly eroded.

To add to the single currency’s woes is the renewed strength of the greenback, and as Alastair McCaig stated, the indecision in the Fed minutes has triggered a spate of US dollar buying. The US central bank may not be looking to increase interest rates between now and June, but the possibility of a rate rise between June and September is now on the cards, and this will keep the pressure on EUR/USD.

The downside target is $1.06 and if that level is punctured then $1.05 will be in sight. Any moves higher for EUR/USD will run into resistance in the $1.0670-80 region, and $1.07 will also provide a barrier to an upside move.

Sterling slides again
The Bank of England kept rates on hold yesterday, which wasn’t a surprise, but the fact the US equivalent is edging towards an interest rate hike is taking its toll on GBP/USD. The increased political uncertainty in the UK over next month’s election is only adding to the pound’s demise. Voters are less than one month away from gong to the polls, and the surge in support for the SNP has put a major spanner in Westminster’s works. The fear is that there will not be a majority government or even a strong coalition after the election, and this will leave the British government in a neutral position, and unable to formulate a clear economic plan.

Next week’s UK consumer price index announcement will be the focus for traders, and Mark Carney has already cited his concerns that the UK could follow the eurozone down the deflation route. Should the inflation report disappoint, it will launch a fresh new wave of GBP/USD selling.

The level of resistance is currently $1.47, should this level be held it will be this year’s low of $1.4635 brought into play. If that level is punctured, $1.46 will be in sight. A move back above $1.47 is likely to encounter resistance at $1.4725, and beyond that traders will look to the $1.4770-80 area.

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