Forex snapshot

EUR/USD breaks below the $1.35 level as ministers meet in Brussels, while the GBP/USD tests support above the $1.3735 level.

Dollar and euro note
Source: Bloomberg

EUR/USD forced below $1.3505

Once again, the driving force behind the move in EUR/USD has been the US side of the equation. This afternoon’s US consumer price index inflation figures have come in below expectations, and this has been enough to finally force the EUR/USD rate below the $1.3505 low that was previously set on 5 June.

This of course, was the day when the European Central Bank president, Mario Draghi, first proposed the targeted long term refinancing operation and negative interest rate on bank deposits. The fact that it has taken over a month and a half for the EUR/USD rate to once again test this level, has no doubt been the cause of many a sleepless night in the Draghi household. At the same time as breaking this June low, it has also traded below the $1.3477 lows set early in the year - around the beginning of February.

As my colleague Chris Beauchamp  stated yesterday, a close below the $1.35 level should trigger tests of the $1.34 and $1.33 levels.

GBP/USD eyes long-term support at $1.70

We are now less than 24 hours away from the release of the latest UK Monetary Policy Committee bank rate votes. Not since August 2011, have we seen anything other than nine votes to nil against interest rates being increased. In order for there to be any real chance of rates rising before the end of the year, we would probably need to see at least one member of the committee bucking this trend and advocating an increase in the base rate.

Unsurprisingly the GBP/USD rate has rather run out of steam, following the MPC announcement that rates would remain unchanged earlier in the month, and drifted lackadaisically lower. Currency traders are no doubt looking for further guidance as to the chance of change this year.

Longer-term, the support above the $1.70 level looks strong as the UK will be raising interest rates. It is only a question of when, and Wednesday’s MPC voting will give markets a clearer picture of when that is.

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