US dollar bull run rages on

Investors favour bullish dollar as political and economic uncertainty caps gains in both the euro and sterling.

Dollar notes and a pound coin
Source: Bloomberg

US Fed rate hike speculation outpaces BoE

Sterling has continued to lose ground against its dollar counterpart, opening at Thursday’s London session down on 0.38%, at $1.5044, as speculation over the timing of an interest rate increase from the Federal Reserve begins to outpace that of the Bank of England. Expectations for a US rate hike were increased on the back of a positive reading in the ADP non-farm payroll data, which saw 241,000 jobs added.

The sharp move lower in GBP/USD has resulted in an oversold reading being achieved on its relative strength index, which is likely to result in a short-term pullback. However, gains are likely to be capped by the 50-day moving average, currently trading at $1.5133, which if held should see a resumption of the overall bearish trend bringing $1.4972 into play. 

Euro upside capped by strong support at 50-DMA

On the back of continued dollar support, EUR/USD has opened up Thursday’s London session on the back foot, down 0.32% trading at $1.1796 – a level not seen since 2006. Euro pairs across the board remain without support as increasing speculation over the possibility of a Greek exit increases. This has seen capital flow into German yields, pushing them to multi-year lows.

Despite a strong move to the downside, EUR/USD's RSI has not posted an oversold reading and remains in contraction territory, supported by the 50-DMA. This has continued to cap any upside with bullish price action failing no less than four times since the currency pair’s top of $1.2572 (16 December). This should continue to be a point of strong support, currently trading at $1.1861. The next clear area of downside resistance is likely to be seen at $1.1750.

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