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Forex snapshot

GBP/USD has had a similar move to EUR/USD in the past two sessions and the strength of the US dollar is the common theme.

All trading involves risk. Losses can exceed deposits.
Euro and dollar currency
Source: Bloomberg

Euro awaits CPI report

The euro has declined in overnight trading as traders prepare themselves for the eurozone inflation report at 10am (London time). On an annual basis, inflation is expected to tick up by 0.1% to 0.4% in September.

Deflation is the watchword of the European Central Bank and any slip in the cost of living would ramp up speculation that the ECB could take more drastic action to stimulate the economy, like announcing a quantitative easing policy which would put tremendous pressure on the euro.

The euro was sent tumbling on Wednesday when the Federal Reserve announced the end of QE3. The dust began to settle yesterday and the EUR/USD recouped some of its losses. Even when the impressive US GDP figure was found out to not be as strong as initially thought, the euro failed to make a sizeable rally.

Meanwhile, the unexpected expansion in the stimulus from the Bank of Japan has given a major boost to the US dollar, which only adds the euro’s problems.

EUR/USD is in a downward trend. The next level lower is the low of the month at $1.25, and a considerable move through this would put $1.24 in sight. If the CPI comes in higher than expected we could see the euro hit $1.26 and the next level up would be $1.2640, and after that $1.27.

Pound slips below $1.60

We are not expecting any economic announcements from the UK today so it will be a US dollar focused session. The US will announce personal sending and personal income and the Chicago PMI will be reported at 12.30pm and1.45pm (London time) respectively.  Now that the safety net of QE has been removed, traders will be looking to consumers and manufactures to carry the baton for US growth.

It is worrying that the pound couldn’t hold onto the gains it made on the back of the artificially high US GDP report. Overnight the pound dropped to $1.5962, and this print is even below Wednesday’s low when the Fed reported an end to the bond-buying scheme.

If the pound drops below $1.5962 again, the next support down is in the $1.5925 region. If that is breeched, $1.59 becomes the target. On the upside, a move above $1.60 would put yesterday’s high of $1.6838 as the one to watch, and the pre-Fed level of $1.6090 would then be in the crosshairs.

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