Two Trades To Watch: EUR/USD, GBP/USD

10 and one 10 us dollar bill

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EUR/USD looks to German and Spanish inflation data. GBP/USD can the pound push to a fresh 8-week high?

EUR/USD looks to German and Spanish inflation data

  • ECB-Fed divergence supports EUR/USD
  • German inflation expected to ease to 7.3%
  • EUR/USD bias to the upside

EUR/USD is holding steady after side gains across the week. The euro is being supported by hawkish ECB chatter and expectations of further rate hikes. Meanwhile, the US dollar is being held back by bets that the Fed may not hike at the May meeting.

In a speech, last night ECB policymaker Isabel Schnabel warned that inflation in the region was proving to be stickier than expected.

Today inflation in the region will be in focus with the release of German and Spanish inflation data.

German inflation is expected to cool to 7.3% YoY down from 8.7%. Meanwhile, Spanish inflation is expected to cool to 3.8% from 6%.

Softer-than-forecast inflation could see aggressive ECB hiking bets ease and weigh on the euro.

Eurozone consumer confidence will also be in focus and is expected to confirm the preliminary March reading of -19.2. Stronger confidence is usually tied to higher consumer spending and inflationary pressures.

The USD will look towards US jobless claims and the final Q4 GDP reading which is expected to confirm 2.7% QoQ annualized.

Where next for the EUR/USD?

Having rebounded from 1.0516 earlier in the month, the EUR/USD bias is still to the upside, although the pair is struggling to extend gains. The holding of the 50 SMA support, combined with the bullish RSI suggests that there could be more upside to be had.

Buyers could look for a rise over 1.0870 the weekly high, to bring 1.0930 the March high into focus.

Sellers will look for a fall below 1.08 to bring 1.0740 the 50 sma into play. A fall below here negates the near term uptrend and open the door to 1.0625 the 100 sma.

(Click on image to enlarge)

eurusd chart

GBP/USD can the pound push to a fresh 8-week high?

  • GBP supported by rate hike bets
  • BoE quarterly bulletin & US jobless claims due
  • GBP/USD bulls could test 1.2360 for upside

GBP/USD is rising after bulls paused for breath yesterday. In a similar situation to the EUR, the pound is being supported by central bank divergence. The Fed appears less certain about its next step even after the banking sector turmoil seems to have been contained.

Meanwhile, BoE Governor Andrew Bailey has said that the central bank may need to hike rates again after UK inflation unexpectedly rose to 10.4% in February and food inflation rose to a record high in March.

Today the BoE will release its quarterly bulletin which could provide further insight into the health of the UK economy and the possible future path of rate hikes.

The US dollar will look to US jobless claims which could once again highlight the resilience of the jobs market. Jobless claims are expected to rise slightly to 196k after unexpectedly falling to 191k in the previous week. Stronger than forecast jobs market could fuel more aggressive Fed bets and lift the USD.

US Q4 GDP is expected to confirm 2.7% QoQ annualized. However, this is the final reading which means that it is usually less market-moving.

Where next for GBP/USD?

After rebounding from 1.1802, GBP/USD has run into resistance at an 8-week high of 1.2360. The bias remains to the upside, which combined with a bullish RSI keeps buyers hopeful of further upside.

Buyers will look to rise above 1.2360 to extend gains to 1.2450 the 2023 high.

Sellers need to break below the 50 sma at 1.2160 to negate the near term uptrend and open the door to 1.2010 the March 15 low.

(Click on image to enlarge)

gbpusd chart

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