Weekly Analysis: The Euro continued to strengthen last week, fueled by a positive ECB outlook regarding economic expansion. The pair breached the previous high and created a new one at 1.2092 but retraced lower in the last day of the week.
Price is in a strong uptrend but at the same time, it looks overextended. This suggests that we will likely see a pullback or a consolidation period before the pair can make significant new advances. The first resistance is located at 1.2070, followed by 1.2100 but currently rejection is present (long upper wick of the last candle, RSI shows bearish divergence) so we expect to see a ranging phase, with price spending some time between 1.2000 and 1.1875.
The first part of the week will be very slow, without notable releases on either side of the Atlantic. The U.S. Producer Price Index (PPI) will be the first major data release of the week, scheduled Wednesday and action picks up even more Thursday with the release of the U.S. Consumer Price Index, which is the main gauge of inflation, showing changes in the price paid by consumers for the goods and services they purchase.
Friday the U.S. Retail Sales numbers come out, showing changes in the total value of goods sold through retail outlets and later in the day the University of Michigan will release their Consumer Sentiment, which is a survey that gauges consumers’ opinions about economic conditions. Higher numbers for any of the indicators released throughout the week have the potential to strengthen the greenback.
The US Dollar suffered heavy selling last week and was surrounded by an overall negative sentiment, so it weakened against most of its counterparts. The Pound capitalized on this weakness and made substantial advances, taking the pair 300 pips higher.
Early in the week we will probably see a touch of the resistance at 1.3250 but soon after, we expect a pullback. The pair has traveled a long distance in a short period of time and this type of price action is usually followed by a retracement. Also, the Relative Strength Index and Stochastic are both overbought, thus increasing the probability of a move lower. If 1.3250 is surpassed, the next destination will be the long term resistance at 1.3450 but after said pullback will occur.
Tuesday the British Consumer Price Index will offer information about the state of inflation in the United Kingdom and Wednesday the Average Earnings Index will show changes in the price that employers pay for work. Both these indicators usually have a high impact and higher numbers are beneficial for the Pound.
Thursday will be the busiest day as the Bank of England will announce the interest rate (currently 0.25%, no change expected) and will release a Monetary Policy Summary, outlining the reasons that determined the rate vote. As always, the U.S. data released throughout the week will have a direct impact on the pair’s movement.
Written by: Bogdan Giulvezan