Weekly Analysis: The US Dollar made a spectacular comeback during the last 2 days of last week, bounced at resistance and erased most of the losses incurred a week before. Short term momentum favors the bears as the pair moved below the 50 period EMA.
We see bearish pressure building up, following the failed attempt to break 1.1400 resistance. Now price is trading below the 50 period Exponential Moving Average but although a daily candle has closed below the line, we cannot deem it a true break just yet. However, the Stochastic and Relative Strength Index are showing a bearish bias and favor further downside, so for this week we expect a move into 1.1210 and maybe a break of the bullish trend line seen on the chart if the pair can stay
below the moving average.
The week starts slowly, without any major announcements Monday but Tuesday action picks up with the release of an important U.S. indicator: the Retail Sales. Higher numbers usually strengthen the US Dollar because retail sales account for the major part of consumer spending, which in turn represents a hefty part of the entire economic activity.
Wednesday we remain on the US Dollar side for the release of the Federal Funds Rate as well as the FOMC Statement which will offer details regarding the rate decision. Analysts don’t expect a rate change but any hints about a near-future hike are likely to trigger strong greenback movement.
Thursday we receive inflation data from the United States in the form of the Consumer Price Index and the week finishes Friday with a speech of ECB President Mario Draghi, in Munich. Both these events can have a strong influence on their respective currency so caution is recommended.
Bearish pressure on the Pound mounted late last week as polls showed that now more people favor a separation of Britain from the European Union.
After the long wicked candle that bounced at 1.4650 resistance, the pair fell through the bullish trend line and the support at 1.4350, setting the stage for an extended period of bearish movement. The strong drop was triggered by the polls we mentioned earlier and since we are less than 2 weeks away from the actual referendum (23 June 2016), we expect more of these polls to come out and to influence the Pound’s direction. Short term control belongs to the bears but caution is recommended.
The first event of the week for the Pound is the Consumer Price Index, released Tuesday; this is the main gauge of inflation and shows changes in the price consumers pay for the goods and services they purchase. Usually the impact is strong, with higher numbers strengthening the Pound.
The Claimant Count Change comes out Wednesday, showing changes in the number of people who ask for unemployment related social help and Thursday will be the busiest day for the Pound as the British Retail Sales come out, as well as the Interest Rate and a breakdown of the MPC members’ votes. Although the rate is not expected to change for a long while, the event still creates volatility and sometimes irregular price action. As always, the U.S. events will have a major impact on the pair’s movement.
Written by: Bogdan Giulvezan