British Pound Outperforms, Euro Halts Five-Day Rally

The British Pound pared the overnight decline as price action continued to hold above the 10-Day SMA at 1.5334 and is the best performing currency against the greenback on Thursday. The GBP/USD is 10+pips higher from the open after moving 98% of its daily ATR, and the exchange rate may continue to push higher going into the Asian session as the 30-minute RSI rebounds from a low of 24. However, as the daily RSI advances to 62 and approaches overbought territory, we may see a corrective retracement, which could lead the exchange rate to test the lower bounds of April range, but the strength in the British Pound may carry into the following week if the Bank of England holds an improved outlook for the region. Nevertheless, as the Bank of England is scheduled to release the April meeting minutes next Wednesday at 8:30 GMT, and the pound-dollar is likely to hold a narrow range going into Friday as market liquidity tempers off ahead of the weekend, but a shift in risk sentiment could produce increased volatility in the exchange rate as investors weigh the outlook for global growth.

The Euro halted the five-day rally and extended the overnight losses during the early U.S. trade, but the decline appears to have stalled ahead of the 20-Day SMA (1.3479) as price action rebounds from a low of 1.3522. The EUR/USD remains nearly 90pips lower on the day after moving 115% of its ATR, and the exchange rate may continue to pare the decline going into the Asian session as the 30-minute RSI bounces back from a low of 11. However, the dovish outlook held by the European Central Bank paired with uncertainties surrounding the Greek bailout could lead to a break below the 20-Day SMA, which would expose the monthly low at 1.3283. However, as the Fed and ECB maintains a loose stance on monetary, we may see the exchange rate trend sideways going into the second-half of the year, but a shift in the policy outlook could lead to a major breakout as investors weigh the prospects for future policy.

Join us to discuss the outlook for the major currencies on the DailyFX Forums

To discuss this report contact David Song, Currency Analyst: dsong@fxcm.com