The pair posted a strongly bullish week and moved above last year’s high located at 1.1616 on the back of a hawkish Draghi press conference but also due to US Dollar heavy selling.
After the break of 1.1450 resistance the bulls regained total control over the pair and broke last year’s high, threatening 1.1713, which is the highest level since August 2015. The outlook remains bullish but the Relative Strength Index has become overbought on a Daily chart and even on a Weekly chart, suggesting that a pullback will soon follow. From a short term perspective we expect a re-test of 1.1616 followed by a move into 1.1700 territory.
The trading week starts Monday with a couple of medium-impact indicators for the Euro: the Eurozone Manufacturing and Services PMIs, followed the same day by the U.S. Existing Home Sales. We don’t expect substantial movement at the time of release but usually a number above expectations for any of the three indicators, strengthens the respective currency.
Tuesday’s highlight will be the release of the U.S. Consumer Confidence, a survey of about 5,000 households that tries to gauge the overall opinion regarding business conditions, job availability and the economic situation in general.
Wednesday will be the most important day of the week as the Fed meets to decide the interest rate, which this time is not expected to change (currently <1.25%). The FOMC will also release a statement outlining the reasons that determined the rate decision.
Thursday is a slow day, with the only notable release being the U.S. Durable Goods Orders (shows changes in the total value of orders placed for goods with a life expectancy of more than 3 years). Friday we have a busier day, with the focus on the German Preliminary Consumer Price Index (main gauge of inflation) and the U.S. Advance Gross Domestic Product, which is the main gauge of overall performance of the economy.
After the failed break of resistance, the Pound tumbled and the pair posted a bearish week. One of the main factors that triggered Pound weakness was the British CPI that missed the market consensus and came out below expectations.
The pair is still in a choppy uptrend but the bulls are running out of steam and bearish pressure is mounting. This is shown by the failed break of 1.3050 resistance and the long-wicked candle that followed (price tried once more to move above resistance but failed). These facts make us anticipate a move into the 50 days Exponential Moving Average early in the week and the way price behaves there will reveal more hints about future direction.
The Pound has a very slow week ahead, with the only major release being the British Preliminary Gross Domestic Product, scheduled Wednesday. There are three versions of the GDP – Preliminary, Second Estimate and Final – but the Preliminary tends to have the highest impact, mainly because it’s the first in the series. As always, the U.S. releases will have a direct impact on the pair’s direction.
Written by: Bogdan Giulvezan