Weekly Analysis: Election week is over and United States has a new President. The US Dollar received the news well, strengthening against most of its counterparts and as a result we saw the pair drop through several support levels.
After a big spike that took price into 1.1300 territory, the pair reversed as the US Dollar was fueled by the Presidential Election, dropping through multiple barriers until finally stopping near 1.0850. Early this week we will see if the pair stopped because the markets closed on Friday or because price is exhausted. The distance traveled was more than 450 pips and this calls for a retracement to the upside; this potential pullback has increased chances of happening after 1.0800 support is hit but 1.0850 is not clearly broken. If the US Dollar doesn’t break its current support (1.0850), we may see a bounce that will take price closer to 1.0950 zone.
ECB President Mario Draghi opens the week with a speech delivered Monday in Rome. As usual, caution should be used during his speeches because the Euro may have a strong reaction. Tuesday we take a first look at German Gross Domestic Product with the release of the Preliminary version of this indicator and on the US Dollar side we have the always important Retail Sales. This type of sales represents the biggest chunk of consumer spending, which in turn accounts for the main part of overall economic activity, thus higher readings for the retail sales usually strengthen the greenback.
Wednesday the spotlight remains on the US Dollar with the release of the Producer Price Index, an indicator that tracks changes in the price charged by producers for their goods. It has inflationary implications because if the producer charges more, the client will eventually pay a higher price. Currently, higher numbers are beneficial because inflation is considered too low.
Thursday we take a look at U.S. inflation with the release of the Consumer Price Index and Fed Chair Yellen will testify before the Joint Economic Committee; the topic is economic outlook so we expect high volatility during and after the event. The week finishes Friday with another speech delivered by the ECB President, this time at the Euro Finance Week, in Frankfurt.
The US Dollar couldn’t win the battle against the Pound last week and instead we saw a move above resistance. We have an important week ahead because we will find out if the strength showed by the greenback against other currencies will also extend to this pair.
The previous resistance at 1.2480 is now clearly broken but the 50 days Exponential Moving Average may still reject price lower even if last week closed above it. The candle that moved above the EMA shows signs of rejection and the break is not decisive. It looks like bearish pressure is mounting, so if price returns below the Moving Average early this week, we expect it to drop below 1.2480 but if the Pound continues to strengthen, we will most likely see a move into 1.2800 zone.
The first major release of the week is the British Consumer Price Index, scheduled Tuesday and followed half an hour later by the Inflation Report Hearings, during which BoE Governor Carney will testify on economic outlook and inflation before the Treasury Committee of the Parliament. Both these events usually have a high impact on the Pound so we can expect increased volatility.
Wednesday the Claimant Count Change will offer insights into the British unemployment situation and the final event of the week is the release of United Kingdom’s Retail Sales numbers, scheduled Thursday. As always, the U.S. events will have a direct and possibly strong impact on the pair’s direction.
Written by: Bogdan Giulvezan