Euro bounces back

The euro and the pound have gained ground over the weekend as the dollar makes a small retreat from its bull run.

Euro and dollar notes
Source: Bloomberg

Euro edges higher

The euro dropped to a new 11-year low versus the dollar in overnight trading, but has managed to claw its losses back and is now trading above Friday’s close.

As expected the anti-austerity Syriza party claimed the most seats in the Greek general election, and the radical left-wing party is in the process of forming a coalition government with right of centre independents.

The question that is looming over the euro is, what will the new Greek government demand? the market is afraid that Athens will look to renegotiate the terms of the bailout or discuss the possibility of leaving the eurozone, and the latter will send shockwaves through the region.

The downward trend is still in place and $1.12 is acting as support. Should this metric be held the 50-hour moving average of $1.1315 will be the target. A move below $1.12 will put the overnight low of $1.1097 in sight. 

Pound above $1.50

Sterling has reclaimed the $1.50 level in the overnight trading session as the greenback takes a time out from its upward move. The pounds’ losing streak against the dollar is approaching seven consecutive months, and it is showing no sign of a reversal.

At 9.30am (London time) the UK will announce the British Bankers Association mortgage approvals for December, and the consensus is for 36,600 mortgages to have been approved – which equates to a small decline from the November report. The number of mortgage approvals has been in decline in the UK, but the recent changes made to the stamp duty structure may entice some buyers at the lower end of the market. The market is less concerned about a UK property bubble, and we will see some short-term selling activity should estimates be missed.

GBP/USD is receiving support at $1.50, and should this level be held the 100-hour MA of $1.5080 will be in sight. If the $1.50 metric is breeched it will then act as resistance and the downside support of $1.4950 will be brought into play.

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