USD dips ahead of CPI data

The dollar is trading lower as traders await the US consumer price index report at 1.30pm (London time) and GBP/USD and EUR/USD are pushing higher.

Pound sterling
Source: Bloomberg

GBP/USD above $1.50
The pound has enjoyed a good run due to the pullback in the dollar, but sterling can’t depend on a soft greenback forever. GBP/USD is at its highest level in one month and the beige book update from the US has been the driving force behind it. To add to the pound’s rally was the drop in the UK unemployment rate which came in at 5.6% in February, and that compared to January’s figures of 5.7%.

GBP/USD has been in an upward trend this week and now that it has crossed the $1.50 it will be the acid test for strength of its rally. The pound is over bought on an hourly basis, and that could signal a pullback.

The $1.50 level has proved to be a difficult mark for sterling to hold above, and even though it has been tested several times in the past month, it has always quickly retreated. $1.50 is acting as support and while it holds the resistance at $1.51 will be the target, and beyond that traders will look to $1.52. A drop below $.150 will being the support at $1.4970 into play, and if that mark is punctured then $1.49 will be insight.

Greece hangs over euro
The relationship between Greece and its creditors has taken a turn for the worse now that the Greek finance minister is seeking to defer the country’s repayments. Of all the lenders of last resort, the International Monetary Fund is last open, and even suggesting burning that final bridge was enough to send the cost of Greek borrowing through the roof.

EUR/USD is holding up surprisingly well in comparison to the market for Greek government bonds, but if Greece gets any closer to exiting the currency union that will change.

The final reading of eurozone consumer price index in March was -0.1%, and this met market expectations and while oil prices remain low and demand is weak, the region is likely to remain in deflation.

The US will reveal its inflation report for March at 1.30pm, and the consensus is for a reading of 0.2%, and we will see funds flow back in to the dollar should expectations be exceeded.

$1.08 is acting as support, and if this mark is held the 50-day moving average at $1.0890 will be the target and then $1.09 will be the next hurdle. A drop below $1.08 will being the support at $1.0740 region into play, and then $1.07 will be in sight.

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