Weekly Analysis: For the entire last week the bears maintained their control over the pair, capitalizing on a much better than expected NFP value. The probability of the Fed raising rates in December has increased substantially and this will probably contribute to further downside movement.
The support at 1.0820 was broken last week and this represents a major turning point for medium term direction. The next destination is most likely 1.0500 but before it can be reached, price needs to retrace higher in order to clear the oversold condition of the oscillators and possibly to re-test 1.0820 from below, confirming it as resistance. The overall bias is negative so expect continued downside movement, with 1.0660 as minor support.
The first two days of the week are relatively light in terms of news announcements, with the only important events being the Eurogroup Meetings (Monday) and the ECOFIN Meetings (Tuesday). Wednesday U.S. banks will be closed in observance of Veterans Day so it’s possible to see irregular volatility during the New York session. The same day, at ECB President Mario Draghi will speak at the Bank of England Open Forum; caution is recommended because his speeches always have the potential to strongly impact the single currency.
Thursday is again a slow day but Friday the action picks up with the release of the German Preliminary Gross Domestic Product, the U.S. Retail Sales and the University of Michigan Consumer Sentiment survey. All three are considered high-impact releases so the pair’s direction will probably be heavily influenced by the results.
The pair suffered last week from a disappointing Inflation Report as the BOE lowered their economic growth and inflation expectations. The NFP release strengthened the greenback so the pair finished the week considerably lower.
We expect the downside price action to continue now that the zone around 1.5170 – 1.5200 is broken and the balance is clearly tilted in favor of the bears. However, such a drop is usually followed by a counter move, thus early during this week we anticipate a move higher, which should be treated like a retracement, not a reversal. The oscillators are not oversold but the pair has traveled a long distance in a short while, which makes a move up more probable.
The most important event of the week for the Pound is the release of the Claimant Count Change scheduled Wednesday. The indicator tracks changes in the number of total people who applied for unemployment related aid and usually affects the Pound strongly, with higher numbers being detrimental. The same day BOE Governor Mark Carney will hold a press conference with the main topic being the Inflation Report. This is another possible reason for high volatility so caution is recommended. The rest of the week lacks major economic announcements for the Pound.
Written by: Bogdan Giulvezan