The foreign exchange market has seen movement in the EUR/USD and EUR/GBP pairs, which have been rising while GBP/USD appears to be stalling. This is in response to a softer inflation report from the UK, raising questions about the future of the British economy. Traders are now closely watching for the release of US Consumer Price Index (CPI) data, which is expected to provide further insights into inflation trends and potential monetary policy adjustments.
The EUR/USD pair has rebounded from a two-year low of $1.0178, indicating a recovery phase. The focus now is on overcoming resistance levels between $1.0333 and $1.0344, which were previous lows recorded in November and mid-December. This suggests that the euro may be gaining strength against the dollar, potentially influenced by broader economic factors and market sentiment.
Traders are advised to remain vigilant as the market reacts to these developments, particularly with the impending release of key economic data from the United States. The interplay between inflation rates, central bank policies, and geopolitical factors will continue to shape currency trading in the coming weeks.
On the other hand, GBP/USD is experiencing a more gradual recovery from its 15-month low of $1.21. Traders are eyeing a critical level of $1.225 to surpass, and if broken, the next target would be the early January low of $1.2353. However, a decline below $1.21 would likely lead to further bearish sentiment, with the October 2023 low of $1.2038 and the psychological barrier of $1.20 coming into play.
The upcoming US CPI data is anticipated to play a significant role in shaping market expectations and potentially impacting the Federal Reserve's monetary policy. Inflation trends will influence interest rate decisions, which in turn could impact currency valuations.
The EUR/GBP pair is also on an upward trajectory, with support levels identified below the 200-day Simple Moving Average (SMA) at £0.8422. The recent high of £0.8406 serves as a critical support point, while further support is found between the mid-October and mid-to-late November highs, ranging from £0.838 to £0.8364. This indicates a strengthening euro against the pound, potentially influenced by differing economic outlooks and monetary policy stances from the European Central Bank and the Bank of England.
In the broader economic landscape, the fluctuations in currency pairs highlight the interconnectedness of global markets. Traders will continue to focus on economic indicators and central bank communications that could signal shifts in monetary policy. The interplay between inflation data, interest rates, and currency strength will be critical in determining the direction of these pairs in the near term.