Weekly Analysis: Last week the pair remained in a relatively tight range, moving slightly below 1.1700 support but failing to break it. The Non-Farm Payrolls showed a disappointing figure, mostly because the storms that hit the U.S. had a bigger impact on the jobs market than anticipated.
As long as the bears cannot break the support at 1.1700 and price is trading below the 50 days Exponential Moving Average, the pair is in a range, without momentum to either side. This week we will most likely see a move outside one the two barriers and that will probably decide the next medium term direction. Our bias is mostly neutral until such a break occurs and after the break, the first downside barrier will become 1.1600, while to the upside 1.1875 is the first resistance.
The first two days of the week ahead lack major events on the economic calendar, so price action will be mostly decided by the technical aspect. Wednesday the FOMC will release the Minutes of their latest Meeting, a document which contains details about the reasons that influenced the latest rate decision but more importantly, it can contain hints about future increases.
Thursday ECB President Draghi will speak in a panel discussion at the Peterson Institute for International Economics and Friday will probably be the busiest day, starting with the U.S. Consumer Price Index and the U.S. Retail Sales. Inflation and sales made at retail levels are some of the main price drivers, so higher numbers for any of those can strengthen the respective currency.
The final release of the week will be the University of Michigan Consumer Sentiment, which is a survey that acts as a leading indicator of consumer spending.
The pair ended the worst week in a year, dropping more than 350 pips. The move was generated by political uncertainty in the UK (rumors that Prime Minister May will be asked to step down) and worse than expected British economic data.
The current bias is definitely bearish, with a strong Dollar and a Pound affected by Brexit fears and political unease. We expect to see further downside movement but a 350 pips move is likely to generate some sort of retracement to the upside, possibly from the current support at 1.3050. If this is the case, we don’t expect price to climb above the 50 days EMA and if that mark is reached, the pair will likely resume downside movement.
The first notable indicator for the Pound will be released Tuesday in the form of the British Manufacturing Production, which is a measure of the output generated by manufacturers. The same day the National Institute of Economic and Social Research (NIESR) will release their GDP Estimate; however, this is often overlooked by market participants mostly because it is just an estimate and is not released by the Government. As always, the U.S. economic data will have a direct impact on the pair’s performance.
Written by: Bogdan Giulvezan