US dollar highest since March 2009

EUR/USD is facing pressure ahead of the European Central Bank meeting tomorrow, and GBP/USD is trading sideways on the run up to the autumn statement.

US dollar notes
Source: Bloomberg

Euro supported by $1.24

The EUR/USD pair has dropped to its lowest level in over a week, as the US dollar takes advantage of its safe haven status. The US dollar basket rose to its highest level since March 2009 as a crumbling ruble and an ever-uncertain Japan saw funds flow in to the greenback. The weakness in the euro isn’t solely down to US dollar strength, however, as just over a day away from the ECB meeting the chatter about full-blown quantitative easing is on the rise. Some traders remain sceptical over whether Mario Draghi will go down that route as he has a history of suggesting easing plans, but only embarks on it when he feels he absolutely needs to act.

Today’s services PMI data from the eurozone may provide us with a clue as to what we could be in store for tomorrow, but I suspect only particularly poor numbers would spark a fresh wave of selling the EUR/USD pair. As Alastair McCaig stated, Germany is a major opponent of QE and the powerhouse of Europe tends to get its way.

The old support level of $1.24 has now become resistance, and only when we take out the recent low of $1.2359 will $1.23 become the downside target.

Sterling flat ahead of autumn statement

The GBP/USD pair saw most of its price action overnight within the $1.5640-$1.5650 region, and, even though the autumn statement is unlikely to send sterling into a frenzy, traders remain hesitant ahead of the 12.30pm (London time) announcement. We have already heard about cash injections for the NHS and funding for flood defences, and there is the possibility of pension reform and changes to inheritance tax. Currency traders will be interested in any guidance for UK growth. The current estimate for growth next year is 2.3% and George Osborne is expected to increase the forecast to 2.5%. Guidance that deviates far from this estimate would add volatility to GBP/USD.

The US will announce the Beige Book at 7pm (London time). The report will provide traders with an update on the US economy which is much needed, as Janet Yellen conveniently failed to mention anything about monetary policy in her speech in New York yesterday.

As Alastair McCaig stated, $1.56 is a support level for GBP/USD and, since Mr Osborne is facing re-election next year, I foresee his commentary being on the positive side. This could push GBP/USD to the $1.57 region which coincides with the 200-hour moving average.

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