Weekly Analysis: For the entire last week the pair consolidated below 1.1240 resistance and the bull run came to a halt, preparing the stage for a deeper move south. The economic scene didn’t present any market moving events and this contributed to the overall situation.
Several Daily candles pierced 1.1240 resistance but failed to close above it, thus showing clear signs of rejection and making us anticipate a move lower, which will have 1.1120 – 1.1100 as first target. Despite the failure at 1.1240, it must be noted that the pair is still in an uptrend a significant low hasn’t formed yet. This means that a potential break of 1.1240 will probably take the pair into the next resistance, located at 1.1340.
Monday ECB President Mario Draghi will testify about the economy before the Economic and Monetary Affairs Committee. This is potentially a big mover for the Euro and will probably generate increased volatility. U.S. Banks will be closed, in observance of Memorial Day.
Tuesday the German Preliminary Consumer Price Index will be the highlight on the Euro side, while the US Dollar will be affected by the Consumer Confidence, a survey that acts as a leading indicator of consumer spending.
Wednesday we take a look at European inflation with the release of the Flash Estimate version of the Consumer Price Index and Thursday U.S. jobs data is released in the form of the ADP Non-Farm Employment Change, a report that shows changes in the number of employed people, excluding the farming sector and Government.
The week ends Friday with the most important U.S. jobs report: the Non-Farm Payrolls. Similar to the previous indicator, this one shows changes in the total number of employed people, excluding the farming sector but including Government jobs. Usually a number above expectations shows increased economic activity and strengthens the US Dollar.
The Pound took a hit last week, dropping for more than 250 pips. Brexit concerns, including the approaching of the June 8 election and the ability of British Prime Minister May’s party to win that election, seem to be the main reason behind the drop.
After failing to break 1.3050 key resistance, the pair dropped into the 50 days Exponential Moving Average and into the support at 1.2770. The way price behaves here will be very important for medium term direction because we are dealing with a confluence zone (two or more technical elements meet in the same place or close vicinity) and a break would show increased bearish pressure, making 1.2570 – 1.2550 the next destination. To the upside, 1.3050 remains the main resistance but a move into this level would have to be backed by strong fundamentals.
The Pound has a slow week ahead, which starts with the Spring Bank Holiday on Monday. No high-impact indicators will be released until Thursday when the Manufacturing PMI comes out, followed Friday by the Construction PMI. Both are surveys of purchasing managers from the respective sectors and act as leading indicators of optimism and economic health. Higher numbers usually strengthen the Pound but the impact is not always high if the actual number comes close to the forecast.
Written by: Bogdan Giulvezan