Weekly Analysis: Last week the bears attempted to break support but the US Dollar strength faded and the pair started to move north, erasing almost all the losses incurred earlier in the week. Overall we had a neutral week, with price finishing close to where it started.
After a perfect touch of 1.1120 support, the pair bounced higher and erased the entire drop. This is the second time that 1.1120 clearly rejects falling prices and the pair is still trading above the 50 days Exponential Moving Average, so the bias remains bullish, anticipating a touch of 1.1240 and possibly 1.1280.
If price drops lower, it will encounter a strong support zone because the 50 EMA is climbing and together with 1.1120 will create a confluence zone. As long as the pair is trading above horizontal support and above the 50 days EMA, our outlook is bullish.
The week starts with the release of the German IFO Business Climate survey and the U.S. Durable Goods Orders, both scheduled Monday. These indicators are considered high-impact but lately their influence on the respective currency has diminished and a strong impact can only be seen if the actual number differs significantly from expectations.
Tuesday ECB President Draghi will deliver a speech in Portugal, at the European Central Bank Forum on Central Banking and later in the day, Fed Chair Janet Yellen will speak in London about the global economy, at the British Academy 'President's Lecture'.
Wednesday ECB President Draghi will participate in a panel discussion at the European Central Bank Forum on Central Banking, in Portugal. Thursday we take a look at German inflation with the release of the Preliminary Consumer Price Index, and on the US Dollar side we have the Final version of the U.S. Gross Domestic Product. The Final version is the least important out of the three (Advance, preliminary and Final), but its impact shouldn’t be overlooked.
Friday no high-impact indicators will be released but worth noting are the German Retail Sales, and Chicago Purchasing Managers’ Index, both with a medium impact on their respective currencies.
The Pound had an interesting week, first weakening when BOE Governor mentioned that a rate hike is not likely to come very soon, and then erasing some of the losses on the back of hawkish comments made by a member of the Monetary Policy Committee.
Although the pair climbed during the latter part of last week, the bias remains bearish as long as price is trading below 1.2770 and below the 50 days Exponential Moving Average. Early this week, we expect to see a touch of the two resistance elements just mentioned and the way price behaves there, will decide the next move. A break would show increased bullish pressure and would make 1.2850 the first target, while a bounce would probably take the pair into 1.2570 – 1.2550.
Tuesday the Bank of England will release the Financial Stability Report, followed shortly by a press conference held by BOE Governor Mark Carney. This has the potential to be the biggest event this week for the Pound, so caution is recommended. Wednesday BOE Governor Carney will participate in a panel discussion at the European Central Bank Forum on Central Banking and this is another reason for possibly strong movement.
The Net Lending to Individuals will be released Thursday and Friday the Current Account comes out, showing the difference in value between imports and exports. The same day the British Final GDP comes out, but this version usually has a low impact on the currency.
Written by: Bogdan Giulvezan