With yesterday’s Portuguese bond auction now safely negotiated, and the collective markets having breathed a sigh of relief with the euro gaining solidly as a result, attention today will be focused on the UK and Europe, as they issue their monthly rate decisions, along with their analysis of the economy for the longer term. Whilst both are likely to keep rates on hold for the time being, it will be the associated statements that will be of more interest and provide the forex markets with clues as to any future changes in policy in the next few months. In the UK of course, the BOE has inflation worries on it’s mind, since inflation has been holding above the desired level of 2% for 41 or the last 50 months, but despite this, a decision to raise rates at this critical time looks unlikely, as the government’s cuts begin to bite, and the prospect of real job losses becomes a reality.

In addition the recent increase in VAT coupled with the soaring price of oil, which now looks set to breach the $100 per barrel in the short to medium term, ¬†will all play their part in adding to the inflation figures as they filter through over the next few months, This of course will add further pressure to the BOE in due course, but at present with ongoing doubts over the banking sector and a fragile economic recovery in place, the chances of a change today look remote. This is further confirmed by a look at the current fundamental picture which remains weak, with worrying growth and debt profiles, and despite yesterday’s strong move higher for the GBP/USD which broke above the 40 day moving average, the longer term picture remains bearish, particularly on the weekly chart where we are starting to run into resistance once again in the 1.5850 region and beyond.

For the euro of course, the ECB will once again be focusing on the sovereign debt problems which continue to dominate, and despite the relative optimism of yesterday’s auction, the problems in Europe are far from over, and likely to rumble on for many months to come with Belgium now added to the growing list of sick and ailing countries in the EU project. For today however, expect to see rates held once again, and from a technical perspective we are likely to see a possible further rally in the euro dollar once again, but with a deep area of resistance now immediately ahead on the daily chart between 1.3100 and 1.3400, expect to see the pair struggle at this level for the time being.

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