Weekly Analysis: The Fed hiked the interest rate last week and hinted towards three more increases over the course the next year. The US Dollar strengthened considerably as a result and the pair broke 2015’s lowest price, located at 1.0462.
Last time the pair traded at such low levels was in the year 2003 so we can say that last week the pair has reached a historical low at 1.0366. Now price is testing the previously broken level at 1.0460, which may turn into resistance and reject price lower; if this is the case, we expect to see a move below 1.0366, otherwise the next destination is 1.0525 zone. Overall the bias is bearish and the Dollar is in control but bullish pullbacks are not out of the question; also keep in mind that Christmas is approaching and this will probably have an impact on the market.
The week ahead is very slow in terms of economic releases, probably because the winter holidays are approaching. However, there are a few releases worth mentioning and keeping an eye on: Monday the German IFO Business Climate survey will show the opinions of about 7,000 businesses about economic conditions and outlook for the next 6 months. The large sample is what makes this survey important but the release doesn’t create strong movement all the time.
Wednesday we take a look at the U.S. house market with the release of the Existing Home Sales and Thursday will be the busiest day of the week: the Durable Goods Orders come out, as well as the Final Version of the U.S. Gross Domestic Product. The GDP is an economy’s main gauge of overall performance but the Final version is the least important so we may see a mild impact. The last release of the week is the U.S. New Home Sales, scheduled Friday.
The US Dollar was boosted by the Fed decision and of course, this was the highlight of last week. The Bank of England also announced their rate decision but no changes were made so the event didn’t generate strong movement.
The bullish trend line seen on the Daily chart above was broken last week, as well as the Moving Average and the level at 1.2480. These are all signs that price may continue lower, towards the bottom of the range, at 1.2090. However, this is a long distance that will not be traveled during the course of one week unless surprising developments take place. Our bias is bearish but a quick move above the three elements mentioned before (trend line, EMA and 1.2480) would probably start a ranging period.
Similar to the Euro and US Dollar, the Pound has a light economic calendar, with the only important releases being the Public Sector Net Borrowing, scheduled Wednesday, the Current Account (value difference between imported and exported goods), scheduled Friday and the Final GDP the same day. All these are considered medium-impact indicators but they can generate volatility if the actual number shows a big difference compared to the forecast.
Written by: Bogdan Giulvezan