UK CPI unchanged

The UK might have avoided deflation, but it is difficult to get too optimistic about the currency.

EUR/USD
Source: Bloomberg

EUR/USD feeling the squeeze
It is now almost a month since we saw EUR/USD set its lows for the year at the $1.0460 level and subsequently bounce back up to $1.1000 before the sellers re-emerged. Today’s fresh squeeze in EUR/USD has taken it to within 100 pips of this mark.

Fundamentally not much has happened in the last 24 hours to trigger this selloff, however, every day of inaction from Greece does take them a step closer to the defaulting or leaving of the eurozone. The Financial Times has stated that they see the Greek government doing just that – a claim that has been refuted. The problem is that currency traders probably give a little bit more credibility to what the FT says than they do to what the Greek government state.

It is also worth noting that JP Morgan has claimed that 'the hurdle for the European central bank [ECB] to taper its purchases before September 2016 is very high'. Considering that it was only the third version of quantitative easing (QE) that ultimately worked in the US, it might be viewed as optimistic that the ECB get it right on its first attempt.

Further pressure on the eurozone should ensure that EUR/USD continues to drift and a retest of year lows looks inevitable.

GBP/USD falls on the back of unchanged inflation
UK inflation remains unchanged at 0.0%, as expected, but with the cost of fuel going up across forecourts around the UK the next set of figures may be a little more positive. GBP/USD has fallen on the back of this and looks set to continue to have downward pressure on it.

The UK press is slowly beginning to cover the financial aspects of the general election a little more closely and the consequences of a hung parliament. The effects of a minority government taking control are being more frequently discussed. This however is still not being fully factored in and as we get closer to the 7 May a steadier stream of negative pressure on sterling looks inevitable.

It is difficult to build too much of a strong case for sterling at the moment and as such we would remain short looking for lower lows.

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