Weekly Analysis: Last week was bullish, with price advancing into 1.1375 but ending on a bearish note, bouncing below 1.1300. Fed Chair Yellen’s 2-part testimony brought some volatility but overall it didn’t have a huge influence on the markets.
The bearish bounce at 1.1375 followed by the move close to 1.1200 zone shows that the bullish momentum is starting to wane and that we will probably see a move into lower territory. The Relative Strength Index and the Stochastic are overbought and starting to move down, improving the chances of a bearish week. The first barrier is the support around 1.1210, a zone that already rejected price higher last Friday; a break of this level would probably add more sellers to the mix and will take the pair lower, towards 1.1100. To the upside, first resistance is located at 1.1375, followed by the key level at 1.1450.
Monday U.S. banks are closed in celebration of Presidents’ Day so the New York session is likely to show decreased volatility. On the Euro side, ECB President Mario Draghi will testify before the Economic and Monetary Affairs Committee of the European Parliament and this is likely to strongly affect the single currency so caution is advised.
Tuesday’s headline is the German ZEW Economic Sentiment, which is a survey of about 275 investors and analysts regarding their 6-month outlook for the German economy. Wednesday the US Dollar will be strongly influenced by the release of the FOMC Meeting Minutes and Thursday the Philly Fed Manufacturing Index is the only notable event. The trading week ends Friday with a look at Unites States inflation as the Consumer Price Index comes out; this is an important gauge of inflation, which showed disappointing numbers for a relatively long while so an increase is likely to bring US Dollar strength.
Last week was characterized by choppy movement and no serious advances were made to either side. All five daily candles show long wicks, suggesting indecision.
The pair touched three times last week the resistance at 1.4565 and the 50 days Exponential Moving Average but each time it bounced lower. This shows that we are dealing with a strong resistance zone which is likely to drive price lower if it is not broken early in the week; however, the pair is in indecision mode and will remain so until either 1.4565 or 1.4350 is broken. The next direction depends on the direction of this breakout but for extra confirmation, a re-test should follow the initial move.
The first major release of the week is scheduled Tuesday: the British Consumer Price Index. Numbers above expectations can strengthen the Pound because currently inflation in the UK is considered too low.
Wednesday the British Claimant Count is released, showing the changes in the number of people who applied for unemployment related benefits and the last important event of the week for the Pound is scheduled Friday in the form of the Retail Sales. For most countries, sales made at retail levels represent a major part of overall economic activity, thus a higher number suggests a thriving economic environment and usually a stronger currency.
Written by: Bogdan Giulvezan