Weekly Analysis: Last week the pair’s direction was controlled almost completely by the bears, with price dropping strongly for four days and breaking the 50 days Exponential Moving Average.
Once the pair moved above 1.0850, it printed a long-tailed candle, showing rejection and quickly started to descend, breaking several support levels, as well as the 50 days EMA. This type of behaviour cannot be considered a simple retracement and instead, we expect a full scale reversal to the downside, with 1.0500 as main target. If the pair bounces higher at the current support (1.0650), we may see a move into 1.0800 but a break of that zone will depend on the fundamentals released this week.
The week opens Monday with the release of the U.S. Manufacturing PMI, a survey of purchasing managers that acts as an indicator of optimism and economic health. A more important release is scheduled Wednesday: the FOMC Meeting Minutes, which will offer insights into the reasons behind the latest interest rate vote. If the Minutes will show that the Fed is likely to hike more times than expected this year, the US Dollar will probably strengthen but either way, this is an event that should be treated with caution.
The last major event of the week is the release of the U.S. Non-Farm Payrolls, scheduled Friday. This is widely considered the most important U.S. jobs report and almost always has a very strong impact on the US Dollar; the indicator shows changes in the number of employed people during the previous month, excluding the farming industry, and higher values usually suggest that consumer spending will increase in the near future, a fact that strengthens the currency.
The Cable had an interesting week, with mixed reaction but it remained trapped between support and resistance after a bounce at the 50 days Exponential Moving Average.
The drop from 1.2570 resistance followed by the bounce at the 50 days EMA can be considered a simple retracement, and one that was expected because on the lower timeframes the pair was clearly overbought. However, it must be noted that 1.2570 acted as strong resistance in the past and last week the pair failed once again to surpass it, so if this week we will see another bounce lower from this level, the bears are likely to take control. If this happens, the first barrier will become the 50 days EMA and the support at 1.2420; keep in mind that the pair is still in a range from a longer term perspective.
The Pound will be affected by three surveys this week: the Manufacturing PMI, Construction PMI and Services PMI, released Monday, Tuesday and Wednesday respectively. The surveys are derived from the opinions of purchasing managers regarding business and overall economic conditions in each sector and act as leading indicators of economic health. Higher numbers usually strengthen the Pound but the impact is often limited if the actual numbers match analysts’ expectations.
Written by: Bogdan Giulvezan