Weekly Analysis: Last week the most anticipated Fed meeting of the year took place and we witnessed a rate hike to <0.50% from the previous <0.25%. The change did not have the immediate effect which most market participants expected but US Dollar strength is probably going to extend to the near future.
Price action throughout the week will be affected by the Christmas Holidays and we are likely to get irregular movement so we recommend caution throughout the week. The pair is currently testing the support zone created around 1.0825 and we expect small bounces to the upside before the level can be broken. However, note the position of the Daily stochastic which is just exiting overbought, a fact which favors extended moves to the downside; Fed’s decision to raise the rate will probably contribute to a stronger move south as well.
The week ahead will be influenced by Christmas and economic news are scarce. Monday no major events are scheduled and Tuesday the Final version of the U.S. Gross Domestic Product comes out, alongside the Existing Home Sales. Wednesday we have the U.S. Durable Goods Orders and the New Home Sales, while Thursday is Christmas Eve and the only notable indicator is the U.S. Unemployment Claims. However, the effect of this release is hard to anticipate due to the low liquidity which will most likely be present.
Friday is Christmas Day thus most banks and brokerages all over the world will be closed so price action will be irregular and without clear direction.
The US Dollar performed better against the Pound than it did against the Euro and we saw strong movement south despite better than anticipated economic data released by the United Kingdom last week.
The bears are having difficulties breaking the support zone around 1.4895 but we expect this barrier to fall and price to head into 1.4600. However, this distance is not likely to be traveled this week. The first target after a potential break of 1.4895 will become 1.4830 (better seen as support on a Weekly chart), but as mentioned earlier, price action during the entire week will be affected by the Christmas Holidays, thus we recommend extra caution.
The British Current Account is released Wednesday, showing the difference between the value of imported and exported goods. A higher than expected number is beneficial for the Pound but the effect is often mild and probably more so this time because we are getting close to Christmas. The same day, United Kingdom’s Final Gross Domestic Product is released; this is the main gauge of overall economic performance but the Final version usually has the lowest impact. Friday British Banks will be closed, celebrating Christmas Day.
Written by: Bogdan Giulvezan