Weekly Analysis: Last week the US Dollar strengthened on speculation that a December rate hike is still on the table but most of the gains were erased Friday and the pair moved above resistance.
Although price retraced higher, the downside still prevails and a clear sign is the rejection seen Friday when the bulls pushed above 1.1000 but then failed to close the week above the level. During the first days of this week we are likely to see a struggle for control around 1.1000, with the result influencing the rest of the week. If the bears regain control, we are likely to see a move into the support at 1.0820 and otherwise, we expect a break of 1.1100
The first important release of the week is the U.S. Manufacturing PMI which is scheduled Monday and acts as a leading indicator of economic health with focus on the manufacturing sector. Tuesday ECB President Mario Draghi will speak in Frankfurt and Wednesday we take a first look at U.S. employment with the release of the ADP Non-Farm Employment Change. The same day Fed Chair Janet Yellen will testify on bank regulation before the House Financial Services Committee.
The last and probably most important event of the week is the release of the U.S. Non-Farm Payrolls, scheduled Friday. This is always a huge market mover but more so now, because at their latest meeting the Fed mentioned that a rate hike is tightly correlated with jobs and inflation. Look for strong movement and use caution at the time of the release.
The Pound showed surprising strength during the last trading day of last week and managed to reverse the previous bearish momentum, moving the pair above several resistance areas.
Although the pair broke a bullish trend line early last week, the downside momentum proved short lived and price returned above the trend line as well as above 1.5330 and the 50 period Exponential Moving Average. This makes 1.5500 the first destination but recently we saw this level reject price several times so it will provide strong resistance once touched. We expect a bearish bounce at the mentioned level but on the other hand, a break would show the bulls have enough strength to retake overall control.
The week ahead is busier for the Pound than usual: Monday, Tuesday and Wednesday the Manufacturing PMI, Construction PMI and Services PMI come out respectively, but the most important day is Thursday when the BOE will announce their decision on the interest rate. A monetary Policy Summary is released at the same time, together with a breakdown of the votes and the Inflation Report which will offer BOE’s projections on inflation and economic growth for the next 2 years. Soon after, BOE Governor Mark Carney will hold a press conference, discussing the Inflation Report.
Friday morning the British Manufacturing Production numbers come out and later in the day, NIESR will release a British GDP Estimate. As always, the U.S. announcements made throughout the week (especially the NFP) will have a direct impact on the pair.
Written by: Bogdan Giulvezan