Weekly Analysis: The European currency weakened after ECB President Draghi announced a QE taper on Thursday last week. From 2018 the monthly pace will run at 30 billion Euros, as opposed to the current 60 billion Euros.
The rejection at the 50 days Exponential Moving Average followed by the confident break of 1.1700 key support shows that the long term uptrend is coming to an end. The pair is likely to enter a bearish market, with the next support and target located at 1.1450 but it’s also possible to see a bounce higher from the current support and a re-test of the recently broken level at 1.1700. If the level will turn into resistance, rejecting price lower, then the chances of a downtrend will increase.
The week starts with the release of the German Preliminary Consumer Price Index, scheduled Monday and continues Tuesday with the Eurozone CPI. These are the main gauges of inflation but often the German data has a bigger impact because it is released earlier and also because the German economy is one of the most important for the entire Eurozone.
Wednesday the FOMC will release their Rate Statement, announcing the rate decision. There’s no change expected but if the statement contains hints about the next hike, we will most likely see very strong movement. Thursday will be a slower day for the pair but the week ends Friday with the most important U.S. jobs data: the Non-Farm Payrolls, which is a report that shows changes in the total number of employed people in the U.S., excluding the farming industry. Higher numbers show increased economic activity and indicate that consumer spending is likely to pick up in the near future, thus strengthening the greenback.
The pair completed another choppy week, with higher volatility than usual but it still remained between support and resistance and all strong moves in one direction were reversed.
The last move is bearish and the US Dollar is picking up pace across the board but for the time being the sellers are having difficulty breaking the support at 1.3050 and the 50 days Exponential Moving Average is still flat, indicating that the pair is in range-mode. This week we expect to see another attempt to break the mentioned support, which, if successful will open the door for an extended move lower, with 1.2950 and 1.2850 as targets. Otherwise, the 50 days EMA will become the first target.
The first major release for the Pound is scheduled Wednesday in the form of the British Manufacturing PMI and followed Thursday by the Construction PMI. These are surveys of purchasing managers that ask respondents to rate business conditions in their respective sectors; the impact is moderate but a greater number than expected usually strengthens the currency.
Also Thursday the Bank of England will announce the interest rate, which is expected to change from 0.25% to 0.50%. If this does happen, we will most likely see huge movement on all Pound pairs, so caution is strongly advised. The same day the Bank of England will release the Inflation Report containing an outlook for inflation and economic growth for the next 2 years and BOE Governor Carney will hold a press conference discussing the Report.
The final event of the week will be the Services PMI, scheduled Friday but this release will probably be overshadowed by the events that unfold Thursday.
Written by: Bogdan Giulvezan