Weekly Analysis: The US Dollar weakened last week, with Friday being the most active day. The decline was generated by FBI’s decision to reopen Clinton’s email case; depending on new developments on that matter, we may see further greenback weakness.
Price bounced at 1.0850 and moved past 1.0955, with the Relative Strength Index and Stochastic exiting oversold, going up. We expect the push up to extend into the 50 period Exponential Moving Average but the pair is still in a downtrend (although fragile) so it’s very likely to see a bearish move when that zone is reached. A break of the 50 EMA will make 1.1150 the first bullish target.
The week ahead starts Monday with the release of the German Retail Sales and Eurozone Estimate Consumer Price Index but these are likely to generate just a medium impact on the Euro. Tuesday French and Italian banks are closed in observance of All Saints Day, so we expect low volatility coming from the Euro’s side and on the U.S. side the Manufacturing PMI is the only notable release.
Wednesday is a huge day for the US Dollar because the Fed will announce the interest rate and will release a FOMC Statement that will explain some of the reasons that determined the rate decision. No change is expected yet, but the event usually generates strong movement.
The final major release of the week is scheduled Friday in the form of the U.S. Non-Farm Employment Change, a report that is widely considered the most important jobs data in the United States. Since this week we have the rate announcement and the NFP (usually these are not released the same week), we expect strong movement on all US Dollar pairs.
The pair moved sideways for almost the entire last week and all directional impulses were quickly reversed. The Pound benefited from a better than expected GDP value but this strengthened it just momentarily.
The bears tried twice last week to break the support at 1.2090 but failed and price stalled. If the pair moves into this support for a third time, it will either break it or it will shoot up. If 1.2090 is broken, we don’t have any immediate support below it, while to the upside we have minor resistance at 1.2325. This level will be the first bullish target if 1.2090 holds. Our bias is neutral, anticipating a strong breakout.
The first major release of the week is the Manufacturing PMI, scheduled Tuesday, followed Wednesday by the Construction PMI and Thursday by the Services PMI. These are leading indicators of economic health, focused on business conditions and derived from the opinions of purchasing managers from the respective sector. The impact is often mild but usually, higher numbers strengthen the Pound.
Thursday the Bank of England will also release their Inflation Report, containing inflation and economic expectations for the next 2 years and the same day the interest rate is made public, as well as a Monetary Policy Summary that offers insights into the reasons that determined the rate vote. As always, the U.S. events released throughout the week will have a direct and potentially strong impact on the pair.
Written by: Bogdan Giulvezan