Sellers in the EUR/USD and GBP/USD profited from a stronger U.S. dollar on Tuesday. The current strength in the greenback is of a more technical nature since market participants are tending to take profit on long positions when currency pairs approach overbought territory. Hence, a pullback was the logical consequence. Moreover, the Federal Reserve’s tightening cycle is keeping the demand for U.S. dollars at higher levels. While the euro dropped towards 1.0860 on a strengthening greenback, the pound sterling remained relatively stable ahead of tomorrow’s ‘Super Thursday’. While the Bank of England is unlikely to change its policy anytime soon, officials may raise their inflation forecasts in the central bank’s quarterly inflation report which should have a positive impact on the pound.
Based on the overall resilience of the pound, it can be seen that investors prepare for a positive outcome of tomorrow’s inflation report. Technically, we believe that there could be some room for further gains in the GBP/USD. If the pound makes it through 1.2965, we could possibly see a run for 1.30/1.3020.
Is the euro’s recent downward move only a correction within its uptrend or a trend reversal? As long as the price remains above 1.0820, the recent downward movement can be considered a normal correction. If the euro falls below 1.0820, filling up the gap until 1.0740 it could be considered a steeper correction but still, bullish sentiment could be intact. Only a break below 1.0650 would change the bias in favor of the bears. On the topside, we will pay attention to the 1.10 and 1.1050-resistance levels.
From a fundamental perspective, there are no major economic reports scheduled for release today so the price action could be oriented towards technical barriers.
ECB President Mario Draghi is due to speak in Dutch Parliament at 11:00 UTC. Any comments on the ECB’s monetary policy could have an impact on the euro.
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