Euro and pound capped by trendline resistance

Demand for the dollar remains the main theme in forex markets, and this is naturally to the detriment of the euro and the pound in low volume trade this morning.

Pound and dollar notes
Source: Bloomberg

The Federal Reserve may have been coy in removing the words ‘considerable time’ from its statement last week, but markets are still under the impression that this central bank will be the first to move in terms of monetary policy tightening.

The fears of a Greek exit and the associated volatility remain front and centre nevertheless, and the prospect of easing from the European Central Bank in the face of deflation is still one of the key drivers for the single currency.

The correlation between GBP/USD and EUR/USD is still apparent and, with the euro ratcheting up another two-year low against the dollar last week, we may well see additional downside for sterling.

EUR/USD downside prevails

A pair's new low of 1.2220 has rendered the recent bullish wedge fairly pointless on EUR/USD, and while it is below the 50-daily moving average at 1.2503 one could expect to see any near term rallies sold. The 50-hour moving average is capping intraday gains at 1.2272 so any moves down through 1.2250 will see those lows retested.  A break above the 1.2280 level could see a push towards the 1.2323 level.

GBP/USD unable to break higher

The pair's trendline resistance from the July highs remains the barrier to upside for the pound, and while below the 1.57 level there is a propensity for a fallback to the recent lows at 1.5542. The bullish divergence on the daily relative strength index could keep the pair rangebound in the meantime with 1.5608 supporting in the intraday and the 50-H MA capping upside at 1.5640/50.

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