Weekly Analysis: Last week ended on a bearish note, even if the beginning belonged to the bulls, who managed to take price briefly above 1.1335. The ECB kept rates unchanged and during the press conference, ECB President Draghi did not make any statements that can affect long term movement.
The pair remained below the broken bullish trend line and the move above 1.1335 was reversed; now we see increased bearish pressure as the 50 period Exponential Moving Average is threatened. This technical indicator combined with the horizontal support at 1.1210 creates a confluence zone that will be difficult to break by the bears, but on the other hand, a break would show that the balance of power is clearly favoring the short side. If this occurs, we expect to see a touch of 1.1100 next. For now, 1.1335 is the first resistance, followed by 1.1400.
The first event of the upcoming week is the release of the German IFO Business Climate, a survey of about 7,000 businesses that asks respondents to give their opinion regarding the state of the economy and business conditions. The release is scheduled Monday and is followed Tuesday by the U.S. Durable Goods Orders, an indicator that shows changes in the total value of orders for goods with a life expectancy of at least 3 years. The same day an American Consumer Confidence survey comes out and acts as a leading indicator of consumer spending.
Wednesday it’s the most important day of the week as the Fed will announce their decision on the interest rate; also a FOMC Statement will be released, outlining the reasons that determined the rate decision. Although no rate change is expected, this release has a strong impact most of the times so caution is recommended.
Thursday’s highlights are the release of the German Preliminary CPI, which is the main gauge of inflation and on the US Dollar side we have the Advance Gross Domestic Product; this is the first version of the GDP and tends to be the most important so we might see significant moves for the greenback. Friday’s highpoint is the release of the Eurozone CPI Flash Estimate which is a key gauge of inflation across the European Union.
The Pound had a strong week against the US Dollar and took the pair above the 50 period Exponential Moving Average in a fast move; however, bullish movement slowed down for the end of the week.
The pair finished last week above 1.4350 and above the 50 period Exponential Moving Average and this makes the short term bias bullish. That being said, we expect a touch of 1.4500 resistance but keep in mind that overall the pair lacks a clear trend and direction changes often, so once (or if) 1.4500 is touched, we expect to see a move south. Probably by that time the two oscillators will both become overbought and this will add to the chances of a drop. If this is the case, the moving average will become the first lower target.
The week ahead is scarce in economic releases that can affect the Pound, with the most noteworthy being the Preliminary version of the British Gross Domestic Product scheduled for release Wednesday and the Net Lending to Individuals scheduled Friday. The former indicator is considered the most important gauge on an economy’s overall performance, while the latter shows changes in the value of loans issued to consumers. Higher numbers for these indicators usually bring Pound strength and the opposite is true for lower numbers. As always, throughout the week the pair’s movement will be directly influenced by the U.S. events mentioned earlier.
Written by: Bogdan Giulvezan