Weekly Analysis: The pair climbed last week and nullified the drop seen a week before. The fundamental scene was quiet until Friday, which was the busiest day of the week but was filled with disappointing U.S. data.
Price is currently ranging and deciding the next move but the short term bias is bullish as seen from last week’s action. After failing to break 1.1060, the pair bounced into 1.1210 resistance but rejection is clearly seen here (the last daily candle has a huge upper wick). The 50 period Exponential Moving Average is flat, meaning the balance doesn’t clearly belong to either side, and this combined with the shape of the candle we talked may generate bearish impulse. If this is the case, we expect a drop into 1.1000 zone. A break of 1.1200 zone will open the door for 1.1335 but unless the fundamental side agrees, we don’t expect that resistance to be touched this week.
Monday we don’t have any major announcements on the calendar but Tuesday action picks up with the release of the German ZEW Economic Sentiment (survey of about 275 German professional analysts and investors regarding overall economic conditions) and the more important U.S. Consumer Price Index (CORE version, which tends to have a higher impact). The CPI is the main gauge of inflation and the Fed closely watches it when deciding interest rate levels, thus the impact on the US Dollar is usually strong.
Wednesday the FOMC Meeting Minutes come out, offering insights into the reasons that determined the latest rate decision and possibly offering hints about future changes, followed Thursday by the Philly Fed Manufacturing Index, which is a leading indicator of economic health derived from the opinions of manufacturers in the Philadelphia district. Friday is an uneventful day, without major releases.
Despite worse than expected U.S. economic data, the Pound continued to depreciate against the US Dollar throughout last week and is now a step closer to historical support.
After the break of the horizontal channel created by 1.3280 resistance and 1.3070 support, the pair continued in the direction of the break, as it was anticipated and now it seems headed towards the historical low at 1.2796. Until it gets there, we will probably see some retracements to the upside but we don’t expect 1.3070 to be broken in the process.
The first event of the week for the British Pound is the release of the Consumer Price Index, scheduled Tuesday. As mentioned before, this is the main gauge of inflation and has a strong impact on the currency, with higher numbers strengthening it, given the fact that current inflation is considered too low.
Wednesday we take a look at the U.K.’s employment situation with the release of the Claimant Count Change, an indicator that tracks changes in the number of unemployed persons. The last important release of the week is scheduled Thursday in the form of the British Retail Sales; this type of sales represents a major part of the entire economic activity and higher numbers usually strengthen the Pound. As always the U.S. events will have a direct impact on the pair’s movement throughout the week.
Written by: Bogdan Giulvezan