Forex snapshot

EUR/USD and GBP/USD opened this week’s trading session lower, but both managed to trade higher throughout the night as traders banked their profits on the strong US dollar. 

Euro and US dollar notes
Source: Bloomberg

Euro moves towards $1.24

The single currency opened lower over the weekend, but managed to recoup it losses this morning, having already made one attempt on the $1.24 level but it failed to push through it.

The euro has a lot of ground to make up if it wants to get back to the pre-Mario Draghi speech level on Friday. The European Central Bank chief’s suggestion that quantitative easing could be on the cards sent the single currency tumbling; traders don’t tend to bet against central banks.

Dealers will be scrutinising the eurozone economies for signs of low growth and deflation as soft economic indicators would add fuel to the fire and maintain a downward pressure on EUR/USD.

The final GDP reading from Germany is due out tomorrow at 7am (London time) and traders are anticipating a reading of 0.1% for the third quarter. The Germany economy contracted by 0.1% in the second quarter so if the reading is negative it could spark a new wave of selling.

On an hourly basis, EUR/USD has moved out of oversold territory, which leads me to believe any moves to the upside will be limited. If the euro moves above $1.24 the 200-hour MA of $1.2485 will be the initial target. If the important psychological mark of $1.25 is cleared, dealers will look to $1.2560. To the downside, if the overnight low of $1.2358 is punctured, $1.23 will be on traders’ radars. 

Spot FX EUR/USD chart

Spot FX EUR/USD chart

Pound remains range-bound

Sterling started the week off on a negative note, but it has managed to swing back into positive territory against the US dollar.

The GBP/USD pair has been stuck in the $1.5640-1.57 range over the past few sessions, as it appears to be more comfortable at the bottom end of the range. As Alastair McCaig stated, strong retail sales figures from the UK last week set the British economy up nicely for the Christmas season. There are no major economic announcements expected from the UK today, which will leave the pound at the mercy of the greenback. The US will report flash services PMI figures at 2.45pm (London time) – the consensus is for a reading of 57.3, which compares with October’s reading of 57.1.

Tomorrow the UK’s second estimate of GDP will shed some light on the question of who will raise rates first, the UK or the US. I feel the latter is more likely, which will keep pressure on GBP/USD.

The hourly relative strength index is telling us that the pound is no longer oversold, so I wouldn’t be surprised it the pound runs out of steam during this session. If sterling breaks below $1.5640, traders will be looking to $1.56, and then the recent low of $1.5590 will be in focus. Even if the pound extends it gains, it is likely to encounter resistance at the 200-hour MA at $1.5695. If sterling clears the recent high of $1.5720 then $1.58 will be in sight.

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