Weekly Analysis: After a bearish start of last week, the pair rallied during the last two trading days and pushed higher, testing resistance. Although the NFP report showed more jobs, hourly wages decreased and apparently this was the reason for US Dollar weakness.
The pair bounced at 1.0525 support and broke through the 50 days Exponential Moving Average but it is now facing the resistance at 1.0680. If this barrier is broken, we expect to see a climb into 1.0800 – 1.0850 this week but the US Dollar reacted surprisingly to the NFP report, weakening even if more jobs were posted. We may see some delayed effects of the NFP at the beginning of this week and if this is the case, the pair will drop back down into 1.0525.
The week opens Monday with a speech delivered by ECB President Mario Draghi at the Massachusetts Institute of Technology Labs for Innovation Science and Policy Fostering, in Frankfurt. This may not have a high impact on the financial market but it is worth mentioning nonetheless and caution should always be used during speeches of heads of central banks.
Tuesday the focus remains on the Euro for the release of the German ZEW Economic Sentiment, a survey of about 275 German analysts and professional investors, which tries to gauge their opinion about a 6-month economic outlook. The survey has a medium impact on the currency, with higher numbers showing optimism and strengthening the Euro.
Wednesday will be the most important day of the week because the Fed will announce the interest rate, accompanied by a rate statement and followed soon after by a press conference held by Fed Chair Janet Yellen. Currently analysts expect a rate hike to <1.00% from the current <0.75% and if this happens, we will probably see US Dollar strength and a drop for the pair. Either way, the event is likely to generate increased volatility.
Thursday the US Dollar will be affected by the release of the Building Permits (number of residential building permits issued during the previous month) and the week finishes Friday with the University of Michigan Consumer Sentiment survey. The same day the Group of 20 (G20) Meetings start, attended by finance ministers and central bankers from the member states.
The pair completed another bearish week, approaching the key support at 1.2090, which is also the bottom of the channel that confined the pair for several months.
If the support zone between 1.2090 and 1.1986 is broken, the pair will be out of the channel so we may see more directional movement and less choppiness. However, it must be noted that this is a strong support zone, the Stochastic is oversold and the Relative Strength Index is very close to its oversold level. Ass these factors are likely to push the pair higher, creating a bullish retracement that may extend into the 50 days EMA.
Two major events will affect the Pound directly this week: Wednesday the Claimant Count Change will show changes in the total number of unemployed people in the United Kingdom and Thursday the Bank of England will announce the interest rate as well as the Monetary Policy Summary. No change is expected for the rate, so unless the Monetary Policy shows some surprising information, the event will just create temporary volatility.
Written by: Bogdan Giulvezan