Euro and sterling target further upside

Both sterling and euro attempt to retrace steep losses against the dollar.

Five and ten pound notes
Source: Bloomberg

Sterling rallies following a sharp decline

Heading into the London open session GBP/USD was trading at $1.5313, up 0.19% as it began recovering from a sharp fall in overnight markets. This saw a low of $1.5173, capping a bearish run which – since December 31 – has seen a -2.86% decline.

Today’s release of the UK’s construction PMI data is expected to show a deceleration from November’s 59.4 to 59.0 in December, and if achieved it may be sufficient in stemming any further declines on Monday.

The sharp decline from $1.5620 to a low of $1.5173 unsurprisingly resulted in a deeply oversold market, with an RSI reading of 6.5 coinciding with the low. This has since pushed higher to 34.2 – a level which still may allow for another retest of the recent lows.

Intermediate support/resistance levels: downside resistance appears to present itself at the $1.5253 level, which if held could see a retest of topside support at $1.5375. 

Euro shakes off weak Spanish employment data

EUR/USD is currently trading at $1.1968, up +0.14% on Monday despite Spanish unemployment change data underwhelming market expectations. The reading came in at -64.4k vs expected -72k, beating its previous monthly print of -14.7k.

The move higher comes after a sustained move lower which saw a low of $1.1864 posted during overnight trading – a move which continues to be supported by the 50-,100- and 200-day moving averages. The pair’s RSI indicator has managed to rally to 39.6 but remains an area of worry for euro bulls.

Intermediate support/resistance: downside resistance should come into play at the $1.1898 level, which if held should see a continued reversal to retest topside support. In the short term this looks to reside at the 50-DMA which is currently trading at $1.2042.

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