Weekly Analysis: Last week started in close vicinity of 1.1700 and the pair pushed higher, above 1.1875 but almost the entire climb was nullified Friday after the U.S jobs data came out better than anticipated and strengthened the greenback.
Given last week’s strong drop from 1.1875, this level is now confirmed resistance and will play an important role for future price action. The uptrend was overextended for a relatively long period (RSI and Stochastic overbought), so a drop was needed and the U.S. jobs data helped it materialize.
For this week we expect a continuation of the bearish move started Friday, with 1.1600 as target, followed by the 50 days Exponential Moving Average. It must be noted that the pair is still in a strong uptrend, so a move back up cannot be ruled out; if this is happens, the first target will be the resistance at 1.1875.
We won’t see any notable release for the Euro and US Dollar during the first two days of the week but action picks up a notch Wednesday with the release of the U.S. Preliminary Unit Labor Costs. This indicator tracks changes in the price that businesses pay for labor, apart from the farming sector, and acts as a leading indicator of inflation (a higher labor cost will eventually translate into a higher price for goods and services).
Thursday the Euro continues to be unaffected by major economic releases and on the US Dollar side we have the Producer Price Index, which tracks changes in the price that producers charge for their goods and acts as another indicator with inflationary implications (higher producer prices are usually passed on to the consumer).
Friday the focus remains on the US Dollar for the release of the U.S. Consumer Price Index, which tracks changes in the price that consumers pay for the goods and services they purchase. This is one of the main gauges of inflation in the United States and usually the release has a high impact on the currency, with higher numbers strengthening it.
The Pound started to weaken last week after the Bank of England lowered inflation expectations and Governor Mark Carney adopted a dovish stance during his press conference. The U.S. Non-Farm Payrolls added fuel to the fire, strengthening the US Dollar and driving the pair lower, to finish the week below support.
The US Dollar is staging a comeback against its counterparts, on the back of better than expected employment data and after a long period of general weakness. For this week we expect further downside, with the 50 days Exponential Moving Average as first and immediate target, followed by 1.2930 and 1.2850. A bounce at the 50 days EMA would invalidate such a scenario and would switch the momentum in the favour of the bulls once again.
The Pound has a very light economic week ahead, with the only notable release being the Manufacturing Production, scheduled Thursday. The indicator tracks changes in the total value of goods produced by manufacturers and acts as a leading indicator of economic health; its impact is usually high because Manufacturing makes up about 80% of the entire Industrial Production, thus higher numbers usually strengthen the Pound.
Written by: Bogdan Giulvezan