Forex snapshot

The pound and euro run out of steam ahead of the Federal Open Market Committee meeting tonight.

Euro and US dollar notes
Source: Bloomberg

Pound stalls at $1.6150

Sterling edged higher in overnight trading but failed to retake yesterday’s high of $1.6182.

Yesterday the US was hot and cold in terms of its economic announcements. An unexpected drop in durable goods (-1.3% vs +0.4% expected) gave sterling the upper hand, but when the conference board consumer confidence came in at 94.5 (a seven year high) the pound’s gains were nearly all but lost.

UK mortgage approvals are due out at this morning, and we are expecting a decline of 1000 to 63,000 in September. Tighter lending from banks and fears of a property bubble have cooled the mortgage market, and a weak report could prompt selling of sterling.

Today’s session will be all about the FOMC at 6pm. The update is expected to bring an end to QE3, but traders will be sifting through the statement to try and ascertain when interest rates will rise. The Federal Reserve has bandied around the phrase ‘considerable time’ when it comes to how long interest rates will remain low for. I suspect we will see much of the same tonight, which may nudge GBP/USD higher.

The 200-hour MA of $1.6098 is providing support and if the level is breeched the support mark is $1.6020. To the upside, the 50-day moving average of $1.6182 (yesterday’s high) is acting as resistance, and if this is taken out then the next level to watch for is $1.6220. 

Euro stumbles at $1.2740

The single currency has been advancing against the US dollar this week but $1.2740 has proved difficult to defeat.

The lack of any important economic announcements from the eurozone so far this week has been a factor in its relative strength. As Chris Beauchamp stated, Germany posted some mixed data but we haven’t seen major reports from the region as a whole.

As I stated above, the focus of today’s session will be on the Fed. We might need to see an extremely dovish statement from the Fed or perhaps no change to the QE scheme in order for EUR/USD to make a sustained rally. The 50-DMA of $1.2783 is acting as resistance, and the next target up will be last week’s high of $1.2840.

The euro may have recouped some of it losses since the start of the month but the downward trend is far from broken. The $1.27 level is providing support for now and a move below it could put $1.2640 in sight, and then $1.26 will be the one to watch. 

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