Forex snapshot

GBP/USD is drifting towards $1.56 as traders await the Bank of England minutes at 9.30am, while EUR/USD is holding on to $1.25 ahead of the Federal Open Market Committee minutes tonight at 7pm (London time).

Bank of England
Source: Bloomberg

Sterling awaits BoE minutes

GBP/USD is hovering above the $1.56 mark as traders look forward to finding out the voting break down from the latest BoE rate decision.

At the beginning of the month, the UK central bank kept interest rates and the bond-buying scheme unchanged at 0.5% and £375 billion respectively. Dealers are expecting all nine members to vote in favour of leaving the stimulus package unchanged. Two of the nine are expected to vote in favour of raising the interest rate, and the remaining seven are expected to be in favour of leaving rates unchanged.

As Alastair McCaig stated, low inflation in the UK is plaguing Mark Carney. Since the BoE has become more dovish is its commentary of late, a switch from one of the hawks, to a dove, could trigger a new wave of selling. If the voting breakdown comes in line with estimates I don’t foresee any major change in volatility.

The pound has made no attempt to break out of the downtrend it has been in since June, and sterling’s decline has increased following Mark Carney’s remarks last week, in which he implied a rate rise at the back end of 2015.

If the pound drops below $1.56 and the recent low of $1.5592 is cleared, then traders will be looking to $1.55. On a daily chart, sterling is oversold so a pullback could be on the cards. The 100-hour moving average of $1.5673 is the initial target, and if $1.57 is cleared, dealers will look to $1.58. 

Euro holds above $1.25

EUR/USD has managed to cling on to most of the gains it made yesterday following the jump in the German ZEW investor confidence report (11.5 reading versus 0.9 expected).

A lack of eurozone announcements today means the trading session will be US dollar focused.

At 1.30pm, the US will report the latest building permits and housing starts reports. The consensus is for 1.04 million and 1.03 million respectively. Additional signs of a recovery in the US housing market could drag the euro lower.

The Fed minutes at 7pm will be the highlight of the session, as the minutes relate to the meeting in which QE was ended. Dealers will be analysing the statement to try and figure out when rates will rise. I suspect the Fed won’t be in any rush to change the base rate, which could lift the euro.

The euro has been anchored around the $1.25 level recently, and a move below this level would put the 200-hour MA of $1.2460 in sight and then $1.24 would be the next level to watch. To the upside, $1.26 is the immediate target, although the 50-day moving average of $1.2618 may act as resistance; a move through this metric would put $1.27 on the radar.

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