Forex snapshot

The pound is edging higher after a jump in UK construction in September. Meanwhile, the euro is standing still after the eurozone GDP and CPI reports.

Pound and dollar currency
Source: Bloomberg

Pound bounces back

The pound has made a small turnaround this morning as UK construction rose in September. Sterling has clawed back some of its losses after the UK announced a 1.8% increase in construction output which was a big swing from the 3% contraction in August. However, traders were anticipating an increase of 3.8% in September. Even though the figures missed estimates the pound still bounced, and these days sterling traders are happy with even remotely positive news.

We may see the pound move towards the $1.57 mark as short-covering kicks in, but I feel any moves higher will be short-lived and could provide a more favourable shorting opportunity as GBP/USD’s downward trend, that has been in place since July, is showing no signs of letting up.

If the pound takes out the recent low of $1.5655, it would put $1.56 on the radar and below traders would be looking to $1.55. On a daily basis the pound is oversold so we may see a snapback, but if $1.57 is taken out then $1.5750 and $1.58 would be the next two targets. If sterling wants to stand any chance of a confident correction it would need to clear the 200-hour moving average of $1.5872.

Euro flat after CPI & GDP data

The single currency has barely moved since the eurozone growth and inflation figures were announced. The GDP figure came in at 0.2%, exceeding the estimate of 0.1%. It was also an improvement on the second-quarter reading of 0.1%, while there was no change to the CPI number which came in at 0.4%, meeting estimates. Overall the figures were positive but they were not strong enough to warrant traders taking fresh long positions on the euro. I suspect some dealers were disappointed as a decline in growth and/or inflation would ramp up quantitative suggestions.

The euro at the moment is right on the 200-H MA of $1.2463. The single currency has barely changed on the week even though it has been above $1.25 and sub-$1.24. I feel the EUR/USD pair will remain rangebound for the session. Perhaps something that could add volatility are the US retail sales and University of Michigan consumer confidence figures at 1.30pm and 2.55pm (London time) respectively.

The euro has been losing ground to the US dollar since May. The selloff has run out of steam recently but I see no signs of a correct anytime soon. A move above $1.25 would put $1.2560 in sight and then traders would focus on $1.26. To the downside, $1.24 is the immediate target, but if this month’s low of $1.2368 is punctured then $1.23 will be in the crosshairs. 

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