Dollar takes a breather

The dollar has pulled back in overnight trading now that the dust has settled in the wake of the Swiss National Bank move.

bg_usd dollar united states new 9
Source: Bloomberg

Euro awaits CPI data

EUR/USD is trading sideways and expectations are that volatility will remain muted ahead of the eurozone final CPI report at 10am (London time). The market is expecting no change from the preliminary reading of -0.3% last month, and should estimates be met it would ramp up speculation about quantitative easing.

The next European Central Bank meeting is the talk of the town and the surprise move by the SNB yesterday just shows how apprehensive the Swiss are about QE from Mario Draghi.

We are just over one week way from the Greek general election, and the left-wing Syriza party is still leading in the polls. The political uncertainty will keep the downside bias on EUR/USD.

Following a sharp move lower yesterday, EUR/USD has rallied off its $1.1569 low to its currently level of $1.1635. Intermediate downside support is at $1.16, which if held would then put the pair’s 50-period (hourly) moving average at $1.1713 target in sight. However, a move below $1.16 would then see current support turn into resistance with downside support at $1.15. 

Sterling above $1.52

Sterling is making up for lost ground against the dollar, but a lack of economic announcements from the UK today will keep the pound at the mercy of the greenback. GBP/USD has seen a lot of consolidation in the $1.5180 region and there is no clear directional bias. The US will release CPI and the University of Michigan consumer sentiment survey at 1.30pm and 2.55pm (London time) respectively — the former being the more important of the two.

The market is expecting a reading of -0.3% from the US inflation report in December. The Federal Reserve stated that interest rates will remain on hold for the next two meetings, and a low inflation rate will not deter them from hiking the rate. The US is still ahead of the UK in the race to increase interest rates first, and that will keep GBP/USD in the downward trend.

In pre-London trading, GBP/USD has moved above its 200-period (hourly) moving average, currently trading at $1.5204 which if held will result in resistance turning into support with an upside target of $1.53 brought into play. However, a failure to break above the $1.5204 level would then see a retesting of downside support, which remains at $1.51. 

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