Weekly Analysis: As expected, the last week of 2016 was governed by low liquidity and irregular price action. The quick climb is mostly attributed to these factors, not necessarily to fundamental or technical reasons. This type of behavior will likely extend to the week that just started.
The pair has reached the 50 days Exponential Moving Average and bounced lower, erasing some of the Euro gains. As mentioned above, the low liquidity characteristic for end of year has played an important role in the move and we cannot predict if it will continue through the 50 EMA or bounce lower through 1.0525 and 1.0460. We expect the first part of the week to be affected by irregular price action and the second part to be more robust.
Monday U.S. banks are closed, celebrating New Year’s Day, thus no major indicators will be released and volume will be low. Tuesday action picks up with the release of the German Preliminary Consumer Price Index, an indicator that is considered the main gauge of inflation; the same day we take a look at the health of the U.S. Manufacturing sector with the release of the Manufacturing PMI survey.
Wednesday’s highlight is the release of the FOMC Meeting Minutes, a document that offers insights into the reasons that determined the Fed latest rate hike and Thursday we take a first look at the U.S. jobs market with the release of the ADP Non-Farm Employment Change. Probably the most important event of next week takes place Friday with the release of the U.S. Non-Farm Payrolls, a report that shows how many new jobs were created during the previous month. This is widely considered the most important U.S. employment data and usually has a very strong impact in the US Dollar.
The pair remained below the 50 days Exponential Moving Average for the entire last week, with choppy movement and low liquidity; the last three days were the most active but a clear direction did not emerge.
As long as the pair is trading below the 50 period Exponential Moving Average, our view is bearish but we acknowledge the fact that price may move erratically, at least during the first part of the week, due to low liquidity. The levels to watch are 1.2480 (1.2500) as resistance and 1.2090 as support and we slightly favor a move lower after a bounce at resistance but only if the 50 EMA will remain above price. Caution is still recommended throughout the week.
UK banks will be closed Monday, celebrating New Year’s Day and action picks up Tuesday with the release of the Manufacturing Purchasing Managers’ Index (PMI), followed Wednesday by the Construction PMI and Thursday by the Services PMI. These are surveys of purchasing managers from the respective sectors, which act as leading indicators of economic health and optimism. The impact is usually moderate but differs from release to release. As always, the pair will be directly impacted by the U.S. indicators scheduled during the week.
Written by: Bogdan Giulvezan