Weekly Analysis: The pair ended the week higher than it started it, mostly because the US Dollar was weakened by U.S. President-Elect Trump’s speech delivered last Wednesday. Throughout the week, price action was choppy and showed sharp reversals.
After a perfect touch of 1.0460 support, the pair rallied and broke the 50 period Exponential Moving Average. Now it is testing 1.0650 resistance but as we can see from the chart above, the last three Daily candles show long wicks and this is a sign of indecision, which was mostly generated by the way that market participants interpreted President-Elect’s speech on Wednesday. If the US Dollar weakness will continue, we will probably see an extended move above 1.0650 and closer to 1.0800 zone, otherwise price will drop through the 50 EMA and into the support zone between 1.0525 and 1.0460. From a longer term perspective the pair is still in a downtrend, which was severely weakened by the multiple failed attempts to break the support zone around 1.0366.
Monday U.S. banks will be closed in observance of Martin Luther King Day and there are no major releases on the Euro side either, so we expect a slow, possibly ranging session. Tuesday the World Economic Forum (WEF) Annual Meetings start in Davos, attended by personalities from the political and financial scene from around the globe (over 90 countries); the event may generate volatility on the market but of course the actual impact will depend on the matters discussed so we cannot anticipate it. The Meetings will continue throughout the entire week, thus caution is recommended.
Wednesday we take a look at U.S. inflation with the release of the Consumer Price Index, an indicator that shows changes in the price paid by consumers for the goods and services they purchase, and Thursday the focus shifts towards the Euro for the ECB interest rate announcement and the usual press conference that follows. The rate is not expected to change but as always, this event should be treated with caution because volatility may surge, especially during the part of the press conference when ECB President Mario Draghi answers journalists’ questions. The trading week ends Friday without any major event, other than the WEF Meetings.
Last week the pair established a new low at 1.2037 but retraced higher soon afterwards and price action continued to be choppy from then on. For now price is still in a range, without a clear bias.
The support zone around 1.2090 was breached but not broken and direction is not clear, as indicated by the sideways movement and the long tails of the candles. However, price is making lower lows and lower highs and these are the characteristics of a downtrend but until 1.2090 is clearly broken, we will consider the pair in a range, capped by the mentioned support and the 50 period Exponential Moving Average to the upside. A clear break of either one of these elements will increase the chance of an extended move in that direction.
The week ahead holds three major releases for the Pound: Tuesday the CPI will offer insights into British inflation and Wednesday we take a look at the jobs situation in the U.K. with the release of the Claimant Count Change, an indicator that shows changes in the number of people who asked for unemployment related benefits. The last major release of the week is scheduled Friday in the form of the British Retail Sales, which account for a major part of the entire economic activity. U.K. representatives will attend the WEF Meetings throughout the week, thus caution is recommended.
Written by: Bogdan Giulvezan