Weekly Analysis: After failing to stay above 1.2070, the EUR/USD dropped and breached 1.1875 support, coming close to the 50 days Exponential Moving Average. The economic scene was calm for the Euro and the data for the US Dollar was mixed, with a better than expected CPI but disappointing Retail Sales.
It looks like the pair completed a retracement and is now bouncing at 1.1875 support, aiming for 1.2000 as immediate target. The uptrend is still in place but it has clearly lost some steam, so if the pair doesn’t break 1.2070 decisively this week, we will probably see a drop through 1.1875 and into the 50 days Exponential Moving Average. An important role will be played by the FOMC Meeting scheduled this week and Fed Chair’s press conference that follows.
The first release of the week is the Final version of the European Consumer Price Index, scheduled Monday. The CPI is the main gauge of inflation but the final version is the last in the series, so its impact is often muted by the earlier data.
Tuesday the German ZEW Economic Sentiment will show the opinions of about 300 German investors and professional analysts about a 6-month outlook for the economy and on the US Dollar side the Building Permits will be the most notable release.
Wednesday will be the most important day of the week as the FOMC will announce the interest rate, the economic projections and will release a rate Statement outlining the reasons that determined the rate decision. Half an hour later, Fed Chair Janet Yellen will hold a press conference discussing the rate outcome and answering journalists’ questions. This is when the US Dollar usually shows huge volatility, so caution is recommended.
Thursday’s only notable event is the U.S. Unemployment Claims and the economic week ends Friday with the German Manufacturing and Services PMIs, which are surveys of optimism among purchasing managers from the respective sectors.
The Pound had a tremendous week, climbing more than 450 pips on the back of hopes that a rate hike will come sooner than expected. Inflation in the United Kingdom has increased and this boosted expectations that the Bank of England might hike until the end of the year.
It’s clear that the Pound is enjoying a positive market sentiment, boosted by rate hike speculation. This is the highest point reached since the Brexit referendum but usually a move like the one seen last week will retrace before continuing higher. The first potential support is located at 1.3450 but this seems like a too distant target, given the Pound strength seen lately. However, we expect to see bearish moves (pullbacks) or a small period of consolidation before a stronger move can take place.
The Pound has a very slow economic week ahead, with the only major release being the British Retail Sales scheduled Wednesday. The indicator shows changes in the total value of sales made at retail level and usually has a high impact on the currency because retail sales represent a major part of consumer spending, which in turn accounts for a big part of overall economic activity.
Written by: Bogdan Giulvezan