Weekly Analysis: During last week the pair reached the support at 1.0525, with the most active day being Wednesday when the FOMC Minutes hinted that a rate hike may come relatively soon. Support is still holding but control belongs to the bears.
The pair has reached a very important support at 1.0525, with the Relative Strength Index and Stochastic both in oversold territory. Also, price traveled a long distance without a proper retracement and all this may indicate that a bullish pullback is needed before bearish movement can resume. We must keep in mind that the pair is in a downtrend so we cannot exclude the possibility of a quick break of 1.0525; if this is the case, the next barrier and target will be 1.0462, which is the lowest point reached since 2015.
The week opens Monday with an important testimony delivered by ECB President Draghi before the European Parliament's Economic Committee, on the topic of Brexit consequences and economic outlook from ECB’s perspective. High volatility may be experienced during the event, thus caution should be used.
Tuesday we have two important U.S. releases: the first is the Preliminary version of the Gross Domestic Product, followed by the Consumer Confidence survey. The GDP is an economy’s main gauge of performance and consumer confidence is a leading indicator of consumer spending, so both of them can strengthen the greenback in case higher numbers are posted.
Wednesday we take a first look at Eurozone inflation with the release of the Flash Estimate Consumer Price Index but also at United States jobs data, with the release of the ADP Non-Farm Employment Change. Thursday’s headline is the release of the U.S. Manufacturing PMI, a survey of purchasing managers regarding business and economic conditions in the manufacturing sector and the week ends Friday with the most important U.S. jobs data: the Non-Farm Payrolls. The indicator is known for its high impact so we expect strong moves and we recommend caution.
Early last week we saw a strong move up but after that, the pair started to move sideways and remained in a tight range, just below the 50 days Exponential Moving Average.
Usually after a period of tight sideways movement, the pair tends to shoot strongly to one side or the other. We have two important barriers: on one hand there’s the 50 days EMA combined with 1.2480 as resistance and on the other hand we have the bullish trend line seen on the chart above as support. A clear break of either resistance or support will probably trigger an extended move in that direction but until that happens, we can expect the pair to continue to move in a range.
Wednesday the Bank of England will release their Financial Stability Report, which is an assessment of current economic conditions as well as risks to financial stability and can offer hints about future monetary policy. The impact is different with each release but can generate strong movement for Pound pairs.
Thursday the Manufacturing PMI is released, followed Friday by the Construction PMI. These are leading indicators of economic health, derived from the opinions of purchasing managers from the respective sectors but usually the impact is strong only if the actual reading shows a big difference compared to analysts’ forecast. As always the U.S. events will have a direct and strong impact on the pair.
Written by: Bogdan Giulvezan