Forex snapshot

The weakness in the US dollar against both the pound and the euro is already looking to be short-term.

Euro and dollar notes
Source: Bloomberg

EUR/USD could retest below $1.26

EUR/USD has managed to bounce back above the $1.26 level in the last couple of days, mainly driven by a correction in the heavily oversold markets rather than any fundamental change in the outlook of the eurozone economies. Yesterday saw Germany posting yet more disappointing economic data that has done nothing to dampen the growing worries about the eurozone’s ability to maintain its recovery.

Tonight will see the latest Federal Open Market Committee minutes released and markets will no doubt use this tool as a guide to the likely timeline for the Federal Reserve to introduce rate rises. FOMC voting member William Dudley's comments last night suggested mid-2015 would appear a reasonable time to start raising rates.

The sentiment is still for lower-lows to materialise and a retest below $1.26 looks on the cards.

Bearish sentiment hangs over GBP/USD

The jury is still out in deciding if Mondays rise in GBP/USD’s rate is just a blip on an otherwise downward trajectory, or if it is a meaningful move signaling the level at which the markets have gauged GBP/USD’s rate to have fallen far enough.

Yesterday saw the International Monetary Fund post its current expectations for global growth and the UK was one of the few western countries not to have its outlook reduced. France, Germany and the euro area on the other hand were all lowered and the fact they form the UK’s largest trading partner does raise questions. How long can the UK maintain growth while its neighbors are all stagnating?

Tonight will see the FOMC minutes released and it is worth remembering that this meeting took place before the latest set of non-farm payroll figures were correlated. It is difficult to remove the bearish sentiment that still hangs over GBP/USD.

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