Lukman Otunuga, Research Analyst at FXTM said there is a growing suspicion that Sterling’s abrupt appreciation last week (Friday) had nothing to do with a change of sentiment towards the currency but rather on the dollar weakness.
This could be a volatile trading session for the currency with the Inflation report parliamentary hearing, Autumn Forecast Statement and second reading of the third quarter GDP all in focus, wrote Otunuga.
He said with inflation still hovering around the highest level in over five years at 3%, it will be interesting to hear Carney’s thoughts at the inflation report hearing on Tuesday.
“In regards to GDP data released later in the week, Sterling could shed more tears if GDP prints below market estimates.
“From a technical standpoint, the GBPUSD punched above the 1.3230 level last week, on the back of Dollar weakness. Bulls have a shot at 1.3300 if prices can keep above the 1.3150 level. Alternatively, sustained weakness below 1.3230 may encourage a further decline back towards 1.3150,” he said.
Euro gripped by political uncertainty
The Euro was vulnerable to heavy losses on Monday after German Chancellor Angela Merkel was unable to form a new government on Sunday night, said Otunuga.
With this bombshell development heightening concerns over political instability in Europe’s largest economy and sparking speculation of fresh elections, the Euro may be in store for further punishment. Although Europe’s encouraging macro fundamentals may offer some background support to the Euro long term, political risk has the ability to trigger further selloffs in the shorter term.
Taking a look at the technical picture, the EURUSD remains bearish below 1.1850. A breakdown and solid daily close below 1.1730 may encourage a further decline back towards 1.1680 and 1.1600, respectively.