EUR/USD and GBP/USD battle with resistance despite continued USD weakness

The US dollar continues to slide as traders struggle to find direction in the absence of any major catalysts this week. EUR/USD is hovering just below 1.0855 as it advances cautiously suggesting that there is no more appetite to buy EUR than there is to sell USD. The momentum seems to be following the path of least resistance but there is a lack of conviction in the moves. We’ll have some consumer confidence data out in the US later this afternoon which could bring a little more energy to FX markets, as well as the PCE index data released on Wednesday afternoon.

Focus will then turn to the Euro Zone February CPI data released on Friday morning as traders will want to know how the disinflation process has evolved. Analysts are expecting the yearly reading to drop to 2.5% from 2.8% in January with prices expected to have dropped 0.4% in the second month of the year. This would bring the rate back to where it was at the end of last year and would enable the European Central Bank to start considering cutting rates soon, something traders are likely hoping for. For EUR/USD, a reading in line with – or even below – expectations would likely see some weakness creep in as it would favour the USD in the carry trade scenario, where the Federal Reserve would be expected to cut rates later than the ECB. A dip back below 1.08 cannot be discarded if the dollar regains the upper hand.

EUR/USD daily chart

Past performance is not a reliable indicator of future results.

Elsewhere, GBP/USD has also consolidated its advances with continuous higher lows, but the pair is struggling to keep going as the highs are coming in lower and away from the daily closes. Short-term resistance seems to be arising around 1.2699 which is limiting the daily range. In the absence of significant data this week from the UK the pair will likely continue drifting with the latest market momentum, which for now seems to be a weaker dollar, and therefore higher for GBP/USD.

The US consumer confidence data will also be important to GBP/USD as consumer spending is a big part of the American economy and therefore could give further insight into the strength of the economy. A strong reading will reinforce the perception that the Federal Reserve will hold off on cutting rates, which could give the dollar a boost higher. GBP/USD buyers will need to achieve a close above 1.27 to strengthen the belief in the rally, followed by 1.2720 which has been a key area of resistance in the past.

GBP/USD daily chart

Past performance is not a reliable indicator of future results.