Weekly Analysis: Last week the bears managed to erase some of the advances made by the buyers and we saw a pullback to the previous support; however, the pair remained above the 50 period Exponential Moving Average and the short term bias is still bullish.
As long as the pair remains above 1.0650 support and above the 50 days EMA, the bulls remain in control of price dynamics, so we consider the current down move a retracement in a short term uptrend. This means that price is likely to rally again, aiming for 1.0800 resistance, followed by 1.0850. If these barriers cannot be surpassed this week, it would mean that the buyers’ strength is starting to fade and this will increase the chance of a reversal. A bearish break of the 50 EMA will make 1.0525 the target for the week.
The week starts Monday with a first look at German inflation with the release of the Consumer Price Index, followed Tuesday by the U.S. Consumer Confidence, a survey that acts as a leading indicator of consumer spending. Wednesday the Fed will announce the interest rate, which is not expected to change but the accompanying FOMC Statement will offer hints about future monetary policy and possibly about the next hike.
Thursday is a slow day for both Euro and US Dollar but Friday we will probably see the strongest movement due to the release of the U.S. Non-Farm Payrolls. This is widely considered the most important jobs data for the U.S. economy and almost always volatility surges at release.
Last week, UK’s High Court ruled that the Government must get Parliament’s approval before triggering Article 50, which would initiate the Brexit. The Pound got a boost from this decision and the pair climbed almost 300 pips during the week.
The pair is trading above the 50 period Exponential Moving Average and shows bullish momentum but the Stochastic has started to turn downwards in overbought territory, warning of a potential retracement. If price pulls back, we expect it to find support around 1.2420 and there, bullish price action is likely to resume, aiming for 1.2750 at the top of the range. As an alternate scenario, a drop below 1.2420 and below the 50 EMA would open the door for a move towards the bottom of the range (1.2090 zone).
The first notable release of the week is the Manufacturing PMI, scheduled Wednesday and followed Thursday by the Construction PMI. The same day the Bank of England will release their Inflation Report and Governor Carney will hold a press conference discussing the contents of said report; also, the Official Bank rate is announced, with no change expected from the current 0.25%. The week ends Friday with the Services PMI, a survey derived from the opinions of purchasing managers from the respective sector, regarding economic and business conditions.
Written by: Bogdan Giulvezan