Last week the Fed decided to hike the rate to <1.00% but their expectations for the rest of the year remained relatively low, anticipating only 2 more increases and this was generally perceived as bearish for the US Dollar. This was also the main reason for the pair’s strong climb.
After failing to move below the 50 days Exponential Moving Average, the pair jumped, fueled by the fundamental side and is now headed towards the resistance zone between 1.0800 and 1.0850. We expect this zone to be reached early during the week and afterwards, the pair is likely to move lower, especially if the oscillators will become overbought by that time. Last week the pair bounced strongly at 1.0600, which is a psychological level (big round number) as well as a technical level so a potential move lower will likely find support there.
The entire week ahead is light in terms of economic releases and the first two days actually lack major announcements altogether. Wednesday the first notable indicator is released: the U.S. Existing Home Sales, which offers insights into the American housing industry by showing the annualized number of homes sold in the previous month, but excluding new buildings.
Thursday Fed Chair Janet Yellen will deliver a speech at the Federal Reserve System Community Development Research Conference and the same day the U.S. New Home Sales numbers come out, showing the annualized number of new homes sold during the previous month.
Friday’s highlights for the Euro are the European Manufacturing and Services PMIs that will show the opinions of purchasing managers regarding the health of their respective sectors, while the US Dollar will be affected by the release of the Durable Goods Orders. Overall we have a slow week ahead, without major announcements, so the main focus will be on the technical side.
The pair was boosted higher last week by two reasons: on one hand the US Dollar weakened due to low expectations for 2017 and on the other hand the Pound strengthened because one MPC member saw the need for a rate hike whereas before all 9 members agreed upon holding the rate unchanged.
The support at 1.2090 proved once again that it is a strong barrier in front of falling price and pushed the pair higher, into the 50 days Exponential Moving Average (of course, the fundamentals outlined above played a major role). The most important level for short and medium term price action is located at 1.2420 and the way price behaves around it will offer hints about the rest of the week: a failed break will open the door again for 1.2090 support, while a clean break will make 1.2570 the first target for the week. Although the latest impulse is bullish, the pair is still in a range from a longer term perspective.
The Pound will be affected by only two important scheduled releases: the British Consumer Price Index, which is the main gauge of inflation, showing changes in the price paid by consumers for the products they purchase and the Retail Sales, which show changes in the total value of sales made through retail outlets. The first indicator comes out Tuesday, while the second is released Thursday and as always, the pair’s direction will also be affected by the U.S. events.
Written by: Bogdan Giulvezan