Weekly Analysis: Early last week the US Dollar was hit with disappointing economic data and this allowed the pair to climb close to 1.1340 resistance. A big portion of the Euro’s gains were erased during Thursday’s ECB press conference but the week still ended higher than it started.
The pair is not showing a clear trend and the oscillators are giving mixed signals (Stochastic is moving up, coming out of oversold while the RSI is turning slowly lower) but it’s clear that rejection was present around 1.1340. The daily candle that came close to this resistance has a long upper wick and was followed by a bearish candle that confirmed the sell signal; this makes us anticipate a drop into the 50 period Exponential Moving Average and the bullish trend line seen on the chart above. If this area will be broken early during the week, we expect a move below 1.1150, otherwise we will probably see another attempt to break 1.1340 resistance.
The week starts slow as Monday lacks any major events; Tuesday action picks up with the release of the German ZEW Economic Sentiment and the same day ECB President Mario Draghi will speak at a ceremony in Trento. We don’t expect his speech to trigger huge moves but caution should be used nonetheless.
Wednesday we have another slow day, followed by a full calendar Thursday when the U.S. Retail Sales are released, as well as the U.S. Producer Price Index, which shows changes in the price charged by producers for their goods. This indicator has inflationary implications because a higher price charged by the producers will be eventually paid by the consumer, and that’s what makes it important.
Friday we take a look at United States inflation with the release of the Consumer Price Index, an indicator that shows changes in the price paid by consumers for the goods and services they purchase. The same day the University of Michigan will release their Consumer Sentiment, a survey that gauges the opinions of consumers regarding current economic conditions.
The Pound was heavily affected by economic indicators last week and moved according to the readings posted. Better than expected data brought it up in the first part of the week but the second part was disappointing and the Pound weakened.
The bounce at 1.3445 took the pair into the 50 period Exponential Moving Average and into the support at 1.3280 so we are now dealing with a ‘bounce or break’ scenario that will decide the next medium-to-short term direction. A bounce will make 1.3445 the target for the week, while a break will put the bears in control, making 1.3070 the target. The oscillators are curving downwards, close to overbought and this slightly favors the bears but control doesn’t clearly belong to either side.
The first important release of the week is the British Consumer Price Index, a key gauge of inflation that shows changes in prices paid by consumers for the products they purchase. The indicator is scheduled Tuesday and is followed Wednesday by the Claimant Count, a report that shows changes in the total number of unemployed people who asked for social aid.
Thursday will be the most important day of the week for the Pound, with the main event being the Bank of England interest rate decision. At the same time a Monetary Policy Summary comes out, detailing the reasons that stood behind the rate decision. Earlier during the day the British Retail Sales are released, so we are in for a busy day but Friday the Pound will have a lackluster economic calendar.
Written by: Bogdan Giulvezan