Weekly Analysis: The pair showed massive bullish movement last week, broke several resistance levels and climbed for approximately 280 pips. US Dollar weakness seen across the board was the main catalyst behind the move.
The immediate destination seems to be the resistance at 1.1240, where we expect to see a bounce lower, forming a retracement. However, we don’t expect this pullback to go below 1.1120 – 1.1100 and once support has been established, the chances of another push to the north will increase. If 1.1240 is broken, the next resistance is located 100 pips higher, at 1.1340. To the downside 1.1120 is the first support, followed by 1.1000 but currently the pair is in a clear uptrend so we favor the upside.
The pair has a slow start of the week, with the Eurogroup Meetings being Monday’s only notable event. Action picks up a bit Tuesday with the release of the German IFO Business Climate, a survey derived from a very large sample of about 7,000 businesses and focused on the respondents’ opinions on current business conditions as well as a 6-month outlook. On the US Dollar side we have the U.S. New Home Sales numbers, released later in the day.
Wednesday ECB President Mario Draghi will speak in Madrid at the First Conference on Financial Stability, organized by the Bank of Spain. Later that day the FOMC will release the Meeting Minutes, containing details of their last interest rate vote but also, possible hints about future rate hikes.
Thursday French and German banks will be closed in observance of Ascension Day and the trading week ends Friday with the U.S. Preliminary Gross Domestic Product, which is an economy’s main gauge of performance and an always-important indicator that can strongly affect the currency.
The pair traded higher last week and climbed into 1.3050 resistance after a bounce off of 1.2850 support. The Pound benefited from positive economic data but also the US Dollar weakened against most of its counterparts and these facts combined generated the push into resistance.
The first touch of 1.3050 triggered a fast bounce lower, which seemed to have 1.2850 as target; however, all the Pound losses were erased the next day and now the pair is testing 1.3050 again. A break of this important level would score another victory for the bulls and would open the door for a move into 1.3430. Keep in mind that we are talking about almost 400 pips so even if the target is reached, it probably won’t happen in a week unless surprising events take place. To the downside, 1.2850 is the first support, followed by 1.2770 and the 50 days EMA.
The Pound will only be affected by two major events this week. The first is the Inflation Report Hearing, scheduled Tuesday, when Bank of England Governor Mark Carney will testify on economic situation and inflation before the Parliament's Treasury Committee. The other event is the release of the British Second Estimate version of the Gross Domestic Product, scheduled Thursday.
Written by: Bogdan Giulvezan