Weekly Analysis: Finally the pair started to pick up some speed last week and now the bears are in control. The US Dollar strength was partly due to the FOMC hinting towards a rate hike later this year and partly due to better than expected U.S. economic data.
Price moved below the previous support at 1.1060 and then re-tested it, turning it into resistance so we expect this level to reject future moves up. The bias is bearish for the week, with the first important target being the support at 1.0910; there’s a minor hurdle at 1.0955 and we expect this to be broken during the early days of the week. The oscillators are approaching oversold and this increases the chance of a bounce into the previously mentioned resistance but once this potential retracement is complete, downside movement is likely to resume.
The week opens with a light calendar and action picks up Tuesday when the United States will release their Consumer Price Index, the main gauge of inflation. Current levels are considered too low, so a higher than anticipated value will likely strengthen the US Dollar.
Wednesday the U.S. Building Permits come out, offering insights into construction sector activity (a permit is the first step required before starting to build). Thursday the European Central Bank takes center stage with the Interest Rate announcement and the press conference that follows shortly. No change is expected for the rate but almost always this event generates strong and often irregular movement. The same day the EU Economic Summit begins and will continue Friday, when no other major indicators are released.
The Pound continued to weaken against the US Dollar last week and is currently surrounded by a negative sentiment which is likely to bring further downside movement.
The pair created a new intermediate low at 1.2090 and then started to move almost sideways. Resistance is located at 1.2480 but we don’t expect the pair to move that high and instead, we anticipate a break of 1.2090 support. The Relative Strength Index is deep in oversold territory and this may trigger some moves north but overall the pair is still on shaky ground, prone to sudden moves.
Tuesday the first important British event of the week comes out: the Consumer Price Index, a gauge of inflation that shows changes in the price that consumers pay for the products they purchase. Higher numbers usually strengthen the Pound.
Wednesday we take a look at UK’s unemployment situation with the release of the Claimant Count Change (shows changes in the number of people who asked for unemployment related social help) and the last important release of the week is the British Retail Sales, scheduled Thursday. UK representatives will participate in the EU Economic Summit and this may generate volatility on the Pound.
Written by: Bogdan Giulvezan