Renewed dollar strength weighs on sterling

After some turbulent trading last week the dollar is showing signs of strength again and is putting pressure on GBP/USD and EUR/USD.

Pound coins and a dollar note
Source: Bloomberg

Sterling slides

GBP/USD drifted lower in overnight trading as the dollar’s strength shined through again. Last week the greenback experienced two major pull backs after the Federal Reserve suggested it was in no hurry to raise interest rates, but now that the has dust settled traders’ preference is still with the dollar.

As I previously noted, the US is tipped to increase interest rates this year, and this will ensure the pound’s downward trend versus the dollar remains.

It is a quiet day in terms of economic announcements from the UK today, but the CPI report tomorrow will provide us with an idea of what the Bank of England’s next move will be. Inflation in the UK is already low, and the market is expecting it to drop to 0.1% in February. Mark Carney has already stated he would cut interest rates if necessary, and a new wave of GBP/USD selling will be triggered should tomorrow’s figures undershoot forecasts.

The $1.49 level is acting as support and if this mark is punctured it will become resistance. The 200-hour moving average of $1.4847 will be the first target and a move beyond that will bring $1.48 into play. If $1.49 is held the first level of resistance will be encountered at the $1.4945-50 region, and if that is cleared then $1.50 will be the next target. 

Euro edges lower

The euro is trading lower after the weekend as the single currency’s rally towards the back end of last week was short-lived.

Elections in France and Spain provided a political talking point, but there was no major reaction seen in EUR/USD.

Mario Draghi is speaking in Brussels today at 2pm (London time), but that is the height of it when it comes to economic events.

Greece is still in the spotlight as the indebted nation is to meet with creditors in Germany, and the relationship between the two countries hasn’t been great to say the least. Greece will continue to say it will commit to reforms, but until it maps out those plans pressure will remain on EUR/USD.

The $1.08 level is acting as resistance, and if this mark is held the support at $1.07 will be the target. If that mark is cleared the 200-hour MA at $1.0634 will be the next target down. A move above $1.08 will convert the level into support and the resistance at $1.0880 will be brought into play, putting $1.09 in sight.  

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