Forex snapshot

The euro is treading water this morning as traders await news from the German central bank. The pound has begun to pull back some of last week’s losses as the CPI and Monetary Policy Committee minutes could fuel a comeback for sterling this morning.

German flag
Source: Bloomberg

Euro awaits Bundesbank report

The euro is currently trading at $1.3382. This morning’s update from the Bundesbank should be interesting given that the German economy contracted in the second quarter of this year. The problems of Greece are well known, but when the powerhouse that is the eurozone registers negative growth, that is when traders sit up and takes notice. Germany holds a lot of sway in the currency union and Bundesbank often gets what it wants.

The report is due out 11am (London time) and any suggestion that the European Central Bank might introduce additional monetary easing could push the euro to $1.3340. The currency is encountering resistance at $1.3415.

Pound bounces back

The pound is trading at $.16733, up 0.25% on the session. As Chris Beauchamp stated last week, the pound is hovering around the 200-daily moving average, so this week could be the beginning of the ‘bounce’.

We are not expecting any major economic announcements from the UK today. Tomorrow CPI will be revealed at 9.30am and the MPC voting breakdown is due out at 9.30am on Wednesday (London time).

If even one of the nine members of the MPC voted in favour of increasing the interest rate, traders will view it as a turnaround point. Between now and the release of the MPC minutes I see sterling heading towards $1.6768. I would like to see the pound take out $1.6828 before I would say the recovery is underway. Support is coming in at $1.6630.

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