EUR/USD targeting 1.50

Currencies Direct October 20th 2009 - 2 minute read

The prevailing market sentiment is for a weaker USD and EUR/USD is driving towards a key barrier option at 1.50 and the pound is piggy backing on USD weakness to push up to the 1.64 levels. The pound is targeting the support level of 1.6450 and a breach of this should open the door to test 1.66. USD weakness is continuing to ensue on the improved confidence in equities and the appetite for risk catalysed by the Dow Jones breaching 10,000 and further boosted by a decent run of US corporate earnings data most notably through Apple.

This week we have data snaps from the UK and the Eurozone which will be closely watched. For the UK the Bank of England will be looking closely at economic data; better than expected UK retail sales data on Thursday and GDP on Friday may comfort the MPC not to expand further on QE. We have Mervyn King speaking tonight and the Bank of England minutes tomorrow which may shed more light on the Bank of England’s current thoughts. The thoughts on the expansion of QE are what will potentially move sterling higher or lower in the short term. For the Eurozone this week will be a good indicator on whether the pace of recovery is receding. The most important economic releases to watch this week will be German producer prices, Eurozone current account numbers, German IFO report and PMI figures from the entire region. If we see disappointing numbers then this could signify that the recovery is losing traction as was largely stimulus led- this could then take the shine from the euro.

Finally the Australian dollar remains buoyant and the minutes from the Reserve Bank of Australia have indicated that inflation control is their priority which opens the door for further imminent rate hikes and further AUD strength.

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