Greenback pulls back

The pullback in the dollar has given the pound and the single currency some much needed breathing space, as GBP/USD edges ahead of the UK second growth estimate, and EUR/USD shrugs off Mario Draghi's hints at easing.

Mark Carney
Source: Bloomberg

Sterling back above $1.57

The pound is holding above the $1.57 level as it appears to have some momentum, in spite of dovish comments from Mark Carney yesterday. The Bank of England Chief reiterated his view that inflation could drop below 1% in the near term but move towards the BoE’s 2% target in the medium term.

The UK will release a second estimate GDP report at 9.30am (London time). The consensus is for a reading of 0.7%, and growth is clearly a factor in shaping the UK central bank’s views, but I feel even a strong figure will fail to jolt the GBP/USD out of the tight range in has been trading in. As Alastair McCaig stated, the focus is on which central bank will raise rates first; the jump in US GDP yesterday puts the Federal Reserve ahead of the BoE in my view.

The initial target for the GBP/USD is the 200-hour MA of $1.5671. The currency pair has found support around the $1.5630 region – a move below that would put $1.56 in sight. The GBP/USD pair has spent little time above $1.57 recently, so if a spate of buying were to occur the level to watch for would be $1.58.

Euro eyes $1.25

The single currency is holding up remarkably well against the US dollar in the face of quantitative easing hints from the European Central Bank and strong growth figures from the US. The back-and-forth between Mario Draghi and Jens Weidmann is the major focus for traders – Mr Draghi likes to talk the currency down but the German central banker is holding the line against full blown QE.

For the time being traders are listening to Mr Weidmann as the eurozone economy is far from fixed, but the recent tick up in inflation suggests that the times haven’t become desperate enough yet.

We are not expecting any major economic indicators out of the eurozone today, so the trading session will be focused on the US dollar.

The EUR/USD is currently resting on the 200-hour MA at $1.2488. If the euro moves through $1.25 then traders will look to $1.2560. On the hourly chart the EUR/USD is approaching overbought territory; if the bulls run out of steam, it could drift back to $1.2420 or even as far as $1.24.

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