Weekly Analysis: After breaking above 1.2000 for the first time since 2015, the bulls failed to continue upside momentum in the latter part of last week and now the pair is trading close to support, ending the week with small losses.
The pair is still in a strong uptrend but it seems like it is about to enter a bearish phase. This is signaled by the very long wicks of the last few candles but also by the bearish divergence seen on the Daily chart above: price is making higher highs but the Relative Strength Index is only making lower highs.
This makes us anticipate a drop into the confluence zone created by the 50 days Exponential Moving Average and the support near 1.1700. On the other hand, a bullish bounce from the current support level (1.1875) will make 1.2000 the first target, followed by last week’s high at 1.2070.
Monday U.S. banks will be closed, celebrating Labor Day and the Euro will not be affected by important economic data either, so we expect a rather slow and possibly ranging session. The only notable data released Tuesday will be the U.S. Factory Orders (shows changes in the value of orders placed with manufacturers) and Wednesday things remains slow, with the ISM Non-Manufacturing PMI being the only notable release.
Action picks up Thursday when the European Central Bank will announce the interest rate (no change expected – currently 0.00%) and ECB President Mario Draghi will hold the usual press conference, which is known to create high volatility almost always. His attitude and answers will be carefully scrutinized by market participants but sometimes are misinterpreted and that’s when sudden changes of direction occur.
Friday will be another day without major economic releases, so the technical aspect will prevail.
The pair had a very choppy week, climbing multiple times above 1.2950 resistance and then dropping below the 50 days Exponential Moving Average. The balance of power shifted several times but the week ended close to where it started.
Last week’s price action shows indecision from both sides and offers very little clues about the next direction. Usually, after a period of indecision, price shoots strongly in one direction or the other so we can expect a breakout to be followed by an extended move in that direction. To the upside 1.3050 is the first target and to the downside 1.2770 is key support. Once price reaches one of these targets, we may see pullbacks.
The first notable release of the week is the British Construction PMI scheduled Monday and followed Tuesday by the Services PMI. Both are surveys of purchasing managers from the respective sectors that act as indicators of optimism, with a medium impact on the Pound.
The last release of the week will be the Manufacturing Production, scheduled Friday. The indicator shows changes in the total value of goods produced by manufacturers and usually strengthens the Pound if it posts higher numbers.
Written by: Bogdan Giulvezan