Forex snapshot

Alastair McCaig looks at how upcoming announcements and economic data could affect the EUR/USD and GBP/USD pairs.

EUR/USD continues to drift ahead of ECB announcement

Currency traders have knocked over 300 pips off the EUR/USD following last month’s comments from Mario Draghi, who mentioned that he would take action in June to combat the strength of the euro.

The last five trading days have seen the EUR/USD rate dip below the $1.36 level in anticipation of events on Thursday. The market has factored in that there will be a change to the ECB base rate, dropping from 0.25% down to 0.1%. This, to an extent, is merely window dressing and it will be the add-on actions that will gain the majority of currency trader’s focus. Not that market watchers will have needed any more convincing, but the poor German manufacturing figures are just the latest reminder of why action is required.

GBP/USD bounces off the 100-day moving average

The pace of the UK’s economic recovery has, over the last six months, outpaced its US counterpart and subsequently seen the strength of sterling improve against the US dollar. From the July 2013 lows the GBP/USD rate has added over 2000 pips by mid-May and, perhaps, has deserved the corrective slide of the last couple of weeks.

Once again the focus will be on Thursday’s UK Monetary Policy Committee rate decision statement and Friday’s US non-farm payroll figures. These two pieces of economic data will go a long way to dictating the direction of GBP/USD for the rest of the month.

In the short term the 100-day moving average should offer further support, and with the relative strength index already at the low end of the range an eventual attempt at breaking the five-year highs, around the $1.70 level, would be expected.

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.