FX snapshot

Ahead of what might well be a vital weekend in the history of the eurozone, the euro is in retreat, while the pound looks to hold on to recent gains.

Dollar and pound
Source: Bloomberg

GBP/USD could move below $1.58

Having hit fresh highs for the year yesterday, the question now is whether the pound can sustain its gains. Economic data this week has given the currency the strength to rally relentlessly, but aside from Inflation Report hearings next week, there is a dearth of data to support the currency at these levels. This rather threatens to pull the rug out from underneath cable, especially given the oversold reading on the daily chart.

Having cleared the May high of $1.58, the outlook does seem positive to some extent – but GBP/USD will need to sustain itself above here in the coming week. The US dollar has taken a breather following this week’s Federal Reserve meeting, but overall the risk still lies to the downside. A move back below $1.58 would raise the prospect of a move towards $1.56, particularly if US data comes in stronger than expected in the coming week. 

EUR/USD eyes 50-day SMA

The move higher in EUR/USD has been rather crab-like, moving sideways for a time before a leap higher. Although we moved above $1.14 yesterday, the currency pair has failed to hold these levels. Crucially, there is some degree of optimism that Monday’s eurogroup summit will come up with some sort of deal to keep Greece ticking over a while longer. In recent weeks, news that suggests Greece will remain in the currency union has tended to push down the euro and cause indices to rally, and this is being seen this morning.

A move back through $1.14 would reignite the upside scenario, but with resistance around $1.1460 there would still be hurdles to clear. With the daily relative strength index and stochastics looking weaker it seems like the downside has the upper hand, especially if a Greek deal can be cobbled together, and in this case I would be looking towards the 14-day EMA at $1.1196 as first line support, followed by the 50-day SMA at $1.1050. 

AUD/USD could test $0.76

The Aussie is retreating from yesterday’s highs, having attempted a break through the 50-day SMA ($0.7810) but failed to succeed in gaining a daily close above this indicator.

Support has been found all week around $0.77, but a daily close below here still means that we are in for a test of the vital $0.76 area. If AUD/USD can turn around and move through $0.78 then we look towards the $0.81 level and the 200-day SMA at $0.8127. 

USD/JPY looks to June high

As earlier in the month, ¥123 continues to provide support USD/JPY, despite the retreat from ¥124 that we saw in the wake of the Fed meeting this week.

Durable goods orders and GDP readings next week will be key for the US dollar, and so long as the pair can hold above ¥124 then the chances of another move in the direction of the June high towards ¥126 look good. 

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