EUR/USD: 1.10/1.11 area should provide good support

Currency Analysis

EUR/USD: 1.10/1.11 area should provide good support


For EUR/USD, Eurozone PMIs are likely to have a muted market reaction, said analysts at Lloyds Bank; instead we expect USD to be the main driver. The year’s low of 1.1098 is the next focus on the downside, but we expect the 1.10/1.11 area should provide good support.

There are key data releases today. With our economists forecasting downside risks to UK services PMI and firmer ADP employment and US services ISM, this suggests downside risks for GBP/USD; we see scope for a move back in line with rate spreads. Relative rate spreads suggest a move towards the 1.52 area.

Lloyds Banks experts also noted that Canada Q4 GDP was firmer than expect, further supporting the recent pare back in rate cut expectations. A rate cut is now not priced until Q3. No change to the policy rate is expected at today’s Bank of Canada rate meeting. However, the statement will be closely watched after Governor Poloz’s last week indicated the January rate cut buys them some time to see how the economy responds. We expect the Bank to reveal a similar stance and indicate it can afford to ‘wait-and-see’. This should keep CAD well supported. A break through 1.2350/45 technical support in USD/CAD would potentially open a move towards the 1.2200 area.

Source: Lloyds TSB