Weekly Analysis: Last week we saw a bounce lower from the 50 days Exponential Moving Average but all the US Dollar gains were erased Friday despite Fed Chair Yellen’s speech that was considered hawkish by many. Now the pair is back to the highs of the previous week.
The pair established support at 1.0495 and bounced higher with strong momentum but it is now facing the 50 days Exponential Moving Average, which is angled downwards. The US Dollar had a surprising reaction to Janet Yellen’s speech but it must be noted that she mentioned a possible rate hike at the next Fed meeting and this will probably trigger USD strength in the near future. If the 50 EMA is broken, the pair still faces strong resistance ahead (1.0650 – 1.0680), whilea bounce lower will take price into the strong support zone between 1.0525 and 1.0495; if these zones are not decisively broken, the pair is likely to enter a ranging period.
The first two days of the week lack major releases but the rest of the week is full of important events that are likely to generate strong movement. Wednesday we take a first look at U.S. jobs with the release of the ADP Non-Farm Employment Change, a report that shows changes in the number of employed people, excluding the government and farming sectors.
Thursday the focus shifts to the Euro as the European Central Bank will announce the interest rate and ECB President Mario Draghi will hold his usual press conference, discussing the rate decision and answering journalists’ questions. The Q&A session is usually when volatility rises and irregular movement is often seen so we recommend caution if trading at the time.
Friday will be the most important day of the week for the US Dollar as the Non-Farm Payrolls are released, showing changes in the total number of employed people during the previous month, excluding the farming sector. This is widely considered the most important U.S. jobs indicator that has a strong impact on the currency, mostly because a growing number of employed people means that consumer spending is likely to increase in the near future.
The Cable finally broke 1.2420 and started to move with a little more conviction last week; the British economic data was overall disappointing and this contributed to the pair’s bearish movement. This may be the start of a period with clearer movement, aiming for support.
The break of the 50 days Exponential Moving Average and of the support at 1.2420 is an important victory for the sellers and is likely to generate additional bearish movement, with a test of 1.2090 key support. A lot will depend this week on the U.S. employment data but from a technical standpoint, we anticipate a move into the mentioned support. Pullbacks to the upside are very likely but as long as price remains below 1.2420, our view is bearish.
Wednesday the HM Treasury will release the Annual Budget, outlining spending and income levels as well as planned investments and borrowing levels. The release can have a high impact on the currency, thus caution is recommended.
The second important release of the week is the British Manufacturing Production, scheduled Friday. The indicator shows changes in the total value of goods produced by the manufacturing sector and acts as a leading indicator of economic activity. As always, the U.S. releases will have a direct and potentially strong impact on the pair’s movement.
Written by: Bogdan Giulvezan