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Forex Market Analysis

May 04, 2021 | Currency Market Analysis

Global Themes

Focus on US data before the BOE growth upgrades and Scottish elections later in the week

• To taper or not to taper? That is the question for BoE
• New month, new Dollar?

BoE

To taper or not to taper? That is the question for BoE

GBP/USD is hovering near the $1.3900 threshold amid a recovery in risk sentiment, which seemingly caps the pullback in the US dollar. With a lack of top tier data being released from the UK this morning, eyes are on the Bank of England’s (BoE) Thursday growth upgrades and taper talk. Will the central bank follow in the footsteps of the Bank of Canada?

Sterling’s implied volatility could fluctuate depending on the outcome of the Scottish election this Thursday. The Scottish National Party (SNP) is expected to claim a majority which in turn could increase the likelihood of a Scottish independence referendum. This risk event could result in a knee jerk reaction in the pound with weakening expected to be the case.

• A potential UK-India trade deal lifts the sentiment around the pound. British Trade Minister Liz Truss said Tuesday, “we will start talks about a full free trade deal with India in the autumn.” Traders now await the UK final manufacturing PMI and US factory orders data for fresh directives.

USD

New month, new Dollar?

April saw an arduous month for the dollar falling consecutively for four weeks. May, however, has seen the dollar drift higher, with investors eager for US economic data to show a roaring recovery which may force policymakers’ hands into normalisation policy.

A plethora of US economic data is to be released between now and week-end, with the headline US jobs data to be released on Friday. Market sentiment seems to be that investors will start to anticipate a hawkish move from the Federal Reserve much quicker than anticipated. We start the busy schedule of economic releases today with international trade balance and US factory orders for March, at 1:30pm and 3:00pm respectively. Yesterday did see a slight downward revision for April’s manufacturing PMI but still showed signs of substantial growth.

• EUR/USD has reversed on the gains seen over the past few weeks breaking below the supporting upward trend line. The pair remains above the $1.20 handle but should this fail the next region of support will be offered around the $1.1945-50 where both the 200 and 50 daily moving average currently reside.


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