Weekly Analysis: Last week’s price action confirmed 1.0800 as a very strong zone of resistance and the pair bounced lower once it reached it. Now price is trading below the 50 days EMA and the bears are in control of short term movement.
The bearish bounce at 1.0800 followed by the break of the 50 period Exponential Moving Average shows that the balance of power is shifting again and that we may enter an extended period of downside movement. However, Friday’s candle shows a relatively long wick and 1.0650 support is not decisively broken, so a move higher is not out of the question. If early in the week the pair moves above the 50 EMA, we expect to see another test of 1.0800 and on the other hand, if it remains below the line, the next likely destination is 1.0525 zone.
The first major release of the week ahead is the German Preliminary Gross Domestic Product, scheduled Tuesday. The German economy is an important pillar of the entire Eurozone and the GDP is the main gauge of performance, thus higher numbers usually strengthen the Euro. The same day Fed Chair Yellen will testify on the Semiannual Monetary Policy Report before the Senate Banking Committee.
Wednesday is a strategic day for the US Dollar as we take a first look at the always-important U.S. Consumer Price Index (measure of inflation), but also the U.S. Retail Sales and later in the day Fed Chair Yellen will testify again, this time before the House Financial Services Committee.
Thursday’s highlights are the U.S. Building Permits (a higher number suggests increased activity in the construction sector) and the Philly Fed Manufacturing Index, a survey that acts as a leading indicator of economic health, focused on the Philadelphia district. Friday is a light day, without any major releases.
The week that just ended was slow, with price action confined in a tight range above the 50 days Exponential Moving Average and above 1.2420 support. This tight squeeze may be followed by a strong breakout.
For the entire last week price remained above 1.2420 and above the 50 days EMA, moving almost completely sideways and leaving no clear clues about future direction. From a longer term perspective the pair is in a channel, with 1.2750 as the upper barrier and 1.2090 as the lower one, so until a clear breakout is seen, price will bounce between boundaries. The mentioned breakout may occur this week and even if it doesn’t, we expect to see a lot more action than last week, mostly because lately price has been trading in a very tight range and this is usually followed by a strong move.
The Pound will be affected by three major releases this week: Tuesday the Consumer Price Index comes out, followed Wednesday by the Claimant Count Change (indicator that shows how many people asked for unemployment related benefits) and Friday by the British Retail Sales. These are all major indicators that can have a strong effect on the Pound and the pair will also be affected by the U.S. events throughout the week.
Written by: Bogdan Giulvezan