Weekly Analysis: The first days of last week were slow and choppy but action picked up later in the week when the bears managed to break support on the back of better than expected U.S. economic data. The uptrend is still intact but is severely weakened.
The pair broke 1.1335 support and is now struggling to move below the 50 days Exponential Moving Average. Last time price encountered this form of support, it bounced higher, so the same scenario may apply now, but a bearish break will put control in the hands of the sellers. If this happens, we will probably see a touch of 1.1210, followed by a small retracement to the upside; on the other hand, a bounce higher and a fast move above 1.1335 would make 1.1450 the target for the week.
The week starts slow, with Swiss, French and German banks being closed in observance of Whit Monday; no important indicators are released by the United States either. Tuesday action picks up with the release of the always important U.S. Consumer Price Index, which is the main gauge of inflation. Wednesday the FOMC will release the Minutes of their latest Meeting, offering insights into the reasons that generated the rate votes. More importantly, this document may contain hints about the pace of future rate changes and if this is the case, the US Dollar is likely to have a strong response.
Thursday the Philly Fed Manufacturing Index coms out, showing the state of the manufacturing sector according to the opinions of surveyed manufacturers and Friday is another slow day, with the U.S. Existing Home Sales numbers being the only notable event.
The first 4 days of the week that just ended were incredibly choppy and all moves in one direction were quickly reversed. It seems the pair is now finally picking a direction but support is still in the way.
The pair finished the week below the 50 days Exponential Moving Average but the support at 1.4350 is still intact; the Stochastic is entering oversold but the Relative Strength Index still has a long way to go and all this paints a blurry picture, with reasons for price to go up as well as down. We slightly favor the sell side because momentum is finally starting to pick up after a few days of sideways movement, so we anticipate a break of 1.4350 and a touch of the bullish trend line seen on the chart above.
The first British event of the week is scheduled Tuesday: the Consumer Price Index which measures changes in the price that consumers pay for their purchases. It is the main gauge of inflation and usually creates a strong impact, with higher numbers being beneficial for the Pound. Wednesday we take a look into the unemployment situation with the release of the Claimant Count Change, an indicator that shows changes in the number of people who applied for unemployment related help. Higher numbers are usually detrimental for the Pound, showing a possible decrease in economic activity and consumer spending.
The last major event of the week is the release of the British Retail Sales, scheduled Thursday. This kind of sales represents a big chunk of the entire consumer spending which in turn accounts for a major part of the entire economic activity, thus higher numbers usually strengthen the Pound.
Written by: Bogdan Giulvezan