Forex snapshot

The pound has failed to pull back the ground it lost after Bank of England minutes yesterday, while good PMI reports from the eurozone pushed the euro out of oversold territory.

Pound coin on top of a dollar note
Source: Bloomberg

Sterling still under pressure

It is a worrying sign that the pound has failed to retake the 200-hour moving average of $1.6056 in the wake of the BoE minutes yesterday. In less than one week we have had two clear signs that that the UK won’t be increasing interest rates until mid-2015.

The pound has remained in a downward trend since July. We would need to move through the 50-day moving average of $1.6231 in order to end the downward cycle. Meanwhile, the gap between the UK and the US is widening with existing homes sales in the US now at a one-year high. This does not guarantee a rate rise from the Federal Reserve in Q1 of 2015, but there would be more justification for it.

Looking at the relative strength index the pound is edging towards oversold territory. If we hold above the $1.60 mark it could retest $1.6056, and a move through that could put $1.61 in sight. A drop below the psychological $1.60 may put last week’s low of $1.5874 on the radar.

Euro rebounds off weeks low

The single currency jumped higher on the back of the better-than-expected services and manufacturing figures from the eurozone, and the announcement quickly pulled the RSI out of oversold territory. The 50-H MA of $1.2696 is the short-term target, and the next level up to watch is the 200-H MA of $1.2731.

The euro has been in steady decline since May. There has been a distinct acceleration in its drop since August, and it would need to clear the 50-DMA of $1.2827 in order to trigger a turnaround. A move below $1.26 could put $1.25 in the crosshairs. 

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