Euro Under Pressure, Sterling Holds Its Ground

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The U.S. dollar is outperforming the European currencies on Tuesday, but the euro is the biggest lower after some downbeat economic news for the regions.

Earlier on Tuesday the German ZEW economic optimism index fell to 47.2 in January, further than expectations for a decline to 50.0 from 50.4 the month prior and the current conditions index rose to -56.6, less than expectations for an increase to -56.2 from -60.6.

In the minutes following the announcement, EUR/USD fell 34 pips to 1.4321, before moving lower to an intraday low at 1.4264.

The currency has also been under added pressure throughout the morning on the back of concerns surrounding Greece’s ability to finance its budget deficit.

The next support level to watch will be 1.4258, followed by a critical support level at 1.4218, a breach of which will open the way for a new four-month low in the pair.

Across the Channel, sterling remains under pressure against the U.S. dollar, but is outperforming other major currencies after an inflationary CPI report on Tuesday.

CPI rose 0.6% month-over-month in December, faster than calls for a 0.3% increase and prior 0.3% gain. Annual CPI was up 2.9% compared to calls for a 2.6% increase and prior 1.9% pickup.

In the immediate aftermath of the release, GBP/USD rallied 37 pips to a fresh intraday high at 1.6458, as markets participants priced in a more hawkish response from the Bank of England, whose mandate it is to control inflation.

Sterling’s resilience on Tuesday is also being attributed to a deal being struck between Kraft Foods buying UK confectioner Cadbury for $19 billion. The deal seals months of bargaining between both firms and is a boon to the pound sterling given that Kraft will logically have to buy pounds to pay for the deal.

Sterling nevertheless remains weaker against the U.S. dollar, which has benefitted from tighter monetary policy in China.

So far today, GBP/USD has traded in a range of 1.6320 to 1.6458. Short term resistance lies at 1.6421 with support at 1.6137.

Meanwhile, EUR/GBP has traded in a range of 0.8731 to 0.88104 today. Short term resistance lies at 0.89670 with support at 0.87053.