Forex snapshot

Currency markets continue to factor in a QE policy from the European Central Bank, while GBP/USD traders wait for the latest inflation report hearing.

US dollar notes
Source: Bloomberg

Euro running out of steam

EUR/USD has had negative weighting on it for seven months, and although currency traders are factoring in an increased chance of the ECB implementing a form of quantitative easing, the move is beginning to feel like it has run out of steam. Although not fully factored in, markets will be expecting Mario Draghi to elaborate on last week’s speech and add timelines too. Assuming this happens, a return to the run lower looks likely, however if this does not materialise quickly EUR/USD might have a small corrective bounce.

Economic data releases today and tomorrow are focused on the US side of the equation. Strong US data might not trigger the size of move previously seen as currency traders become increasingly blasé to good US data.

On two occasions in the last month we have seen buyers come in when EUR/USD has dipped below the $1.24 level, and this is beginning to look a supportive region for the euro to continue bouncing off.

Cable traders await BoE report

Having previously looked like a hot race the debate over which country, the US or UK, will raise interest rates has somewhat cooled. Currency markets are now factoring in the second half of 2015 as the most likely start for the UK to increase its rates. Expectations for a US rate rise are still centered on the ’considerable time’ statement from the Federal Reserve. Having previously been a race between two hares, it now looks more like one between two turtles.

This morning will see the latest Bank of England inflation report hearing. This regular grilling from the Treasury select committee normally sees Mark Carney and his team having to fight their corner. Considering the global deflationary pressures that are hitting everyone, the fact that UK inflation is below the 2% target is no real surprise.

Unless we hear something particularly surprising from the hearing, I would expect these subdued levels to remain for GBP/USD. The $1.56 level still looks to be attracting buyers, but with the next couple of days giving us extensive US data releases it is difficult to see any move above $1.58 gaining traction.

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.

Find articles by analysts

Find out more about