Weekly Analysis: The pair had a pretty indecisive run last week, climbing into resistance and then erasing all gains, dropping to the levels seen in the beginning of the week.
The busiest day of last week was Friday when we saw a bearish bounce near the confluence zone created by the 50 period Exponential Moving Average and the horizontal resistance at 1.1150. This rejection may trigger an extended drop that will probably reach the low at 1.0911 but for that to happen, the technical and psychological support at 1.1000 needs to be broken. Considering that this week the ECB will announce their interest rate decision, we expect strong movement but the direction will be decided by the events ahead.
The first notable event of the week ahead is scheduled Tuesday: the release of the German ZEW Economic Sentiment, a survey that asks about 275 German analysts and investors to give their opinion about a 6-month economic outlook. The same day the U.S. Building Permits come out, offering information about the state of the construction sector in the United States.
Wednesday is a relatively slow day for the Euro and US Dollar but Thursday we expect strong movement because the European Central Bank will announce the interest rate and President Mario Draghi will hold a press conference. Although the rate is not expected to change, the announcement and the conference almost always create high volatility and possible whipsaws.
The week ends Friday with German Manufacturing data in the form of the Purchasing Managers’ Index but the indicator often lacks the strength to trigger massive moves.
The Bank of England was expected to cut the interest rate last week but they didn’t and as a result the Pound strengthened. Some of the gains were erased Friday on the back of better than expected U.S. data.
Even before BOE’s decision to hold rates was made public, the pair retraced higher, clearing an oversold position of the Relative Strength Index and Stochastic. Now it seems like the pair is headed lower, possibly through 1.3120 and towards 1.2800, resuming the bearish bias generated by the British referendum. The geopolitical environment is fragile and may trigger increased volatility and sharp reversals so caution is recommended.
British inflation data (Consumer Price Index) is released Tuesday, followed Wednesday by the Claimant Count Change, an indicator that tracks changes in the number of individuals that asked for unemployment related social benefits during the previous month.
Thursday’s main event is the release of the British Retail Sales, an important indicator that usually has a strong impact on the market, mainly because sales made at retail levels represent a major part of the entire consumer spending.
The last event of the week for the Pound comes out Friday in the form of the Manufacturing PMI, a survey that offers insights into the state of the manufacturing sector and acts as a leading indicator of economic health.
Written by: Bogdan Giulvezan