Weekly Analysis: Last week the pair erased some of the losses generated by the Brexit referendum and headed higher, into resistance. Part of this climb was generated by speculation that the Fed will not raise rates in the near future.
The pair is still trading below the 50 period Exponential Moving Average and the resistance at 1.1150 is still holding. Upside movement should be contained by the resistance around 1.1200 and by the 50 days EMA so if the pair reaches that zone, we expect downside action to resume. A move above the mentioned zone would invalidate such a scenario and would make the medium term outlook bullish.
Monday the United States celebrate Independence Day and this will likely generate irregular volatility; banks across the US will be closed and no indicators will be released. Tuesday is another slow day, without major releases but Wednesday action picks up with the FOMC Meeting Minutes that will offer details on the latest Fed meeting and possibly hints about future rate direction.
Thursday Automatic Data Processing Inc. will release their version of the Non-Farm Employment Change and Friday the Non-Farm Payrolls come out, showing changes in the number of new jobs created during the previous month. This is widely regarded as the most important jobs related report and almost always its release creates strong movement, with higher numbers strengthening the US Dollar. It will probably be the week’s main market mover so caution is recommended.
Last week the pair established a new historical low at 1.3120 and retraced higher before dropping again. These are massive swings of more than 400 pips so trading the Pound still carries increased risk.
Price was rejected higher at 1.3227 support and after establishing a high at 1.3533, it came back, attempting to break the mentioned support. If this barrier is surpassed earlier in the week, we expect a re-test of 1.3120 and possibly a new low somewhere in the 1.3000 area. A lot will depend on the talks that are still surrounding United Kingdom’s separation from the EU but also on the NFP results that come out later in the week.
Monday the Construction PMI comes out, showing the opinions of purchasing managers regarding overall business conditions in the Construction sector. It will be followed Tuesday by the Services PMI and the BOE Financial Stability Report; also Tuesday BOE Governor Carney will hold a press conference about the Report and this may create high volatility on Pound related pairs.
Wednesday no major indicators are released, Thursday the Manufacturing Production numbers come out and the week ends Friday with the Goods Trade Balance, an indicator which shows value differences between imported and exported goods. Occasionally this indicator creates a strong impact but many times it goes overlooked by the market.
Written by: Bogdan Giulvezan