Weekly Analysis: After the gap seen a week before, the pair started to move almost sideways and both bulls and bears seem to have lost interest. Part of this slow directional movement can be attributed to the lack of major releases last week.
After breaking 1.0850 the pair established resistance around 1.0945 and remained between the two levels for the entire week. Now the Relative Strength Index and the Stochastic are both overbought, which is usually an early indication that price may be coming down in the near future. The weekly gap is not closed and usually price returns to where the gap originated, so we may see an extended move down but this is not a certainty; also, the time it takes for the gap to close is unknown. For now the levels to watch are 1.0945 as resistance and 1.0850 as support; a break of either one may trigger an extended move in that direction.
Monday most banks across Europe will be closed, celebrating Labor Day and this is likely to generate irregular volatility and choppy price action, so caution is advised. On the US Dollar side we have the Manufacturing PMI, which is a survey derived from the opinions of purchasing managers regarding business and economic conditions.
Tuesday is a slow day but action picks up Wednesday when the Fed will announce the interest rate (no change expected from the current <1.00%) and the will release the FOMC Statement, which contains details about the reasons that influenced the rate decision.
Thursday we have another slow day, without major releases and the trading week finishes Friday with the always important Non-Farm Payrolls, an indicator that tracks changes in the number of employed people, excluding the farming industry.
The pair continued last week the bullish momentum started when British Prime Minister May called for a snap general election, and exited the horizontal channel that confined it for more than a week.
Although the pair paused and moved sideways for more than a week, we didn’t see a clear retracement to the downside and such a move is due, considering the overbought condition of the Relative Strength Index and Stochastic. The current up move may extend into the resistance at 1.3050 but once and if it gets there, we expect a bounce lower. Also keep in mind that 1.3000 is a big round number and price will probably react to it as well.
Monday UK banks will be closed in observance of May Day and the rest of the week the Pound will be affected by the release of three Purchasing Managers’ Indexes: Tuesday the Manufacturing PMI comes out, followed Wednesday by the Construction PMI and Thursday by the Services PMI.
These are surveys of purchasing managers from the respective sectors, which act as leading indicators of economic health but usually the impact is low-to-medium; however, numbers above expectations tend to strengthen the Pound. Of course, the pair will be directly affected by the U.S. indicators released throughout the week.
Written by: Bogdan Giulvezan