Weekly Analysis: The pair climbed slowly towards resistance during the first 4 days of last week but Friday the US Dollar erased almost all losses and now support is once again threatened. The Bank of Japan introduced negative rates and this had a wide effect on the financial market.
If the bears manage to break 1.0800 support, we will see an end of the ranging period and probably a move towards the low at 1.0525 (we don’t expect such a move to happen in one week). We slightly favor the short side but we must note the level at 1.0800 rejected price several times so it is still a strong support and the pair is in ranging mode so another bounce higher is not out of the question.
The first headline of the week ahead is represented by U.S. Manufacturing data that comes out Monday in the form of the Purchasing Managers’ Index. Tuesday is a slow day, without major announcements and Wednesday we take an early look into U.S. employment situation with the release of the ADP Non-Farm Employment Change. This report is less important than the Government data that comes out 2 days later but nonetheless, a higher than expected number is considered beneficial for the US Dollar.
Thursday no major indicators come out and Friday will probably be the most volatile day of the week as the U.S. Non-Farm Employment Change (also known as Non-Farm Payrolls) is announced. This is considered the most important gauge of employment in the United States and acts as a leading indicator of consumer spending. Almost always the impact is strong and higher numbers strengthen the US Dollar.
The Pound-Dollar had a back and forth week and all moves were reversed the next day. The bulls didn’t manage to close above resistance and the pair is now near multi-year lows again.
Price showed rejection several times at 1.4350 resistance and it seems the bears are trying to regain control but this will not be achieved until 1.4125 minor support is broken. A more important target is 1.4050, a level that was last touched in 2009. A bullish break of 1.4350 would make the 50 period Exponential Moving Average the first target and also a place where bearish price action may resume.
Monday the British Manufacturing PMI is released, followed Tuesday by the Construction PMI and Wednesday by the Services PMI. These are all leading indicators of economic strength, focused on their respective sectors but lately the impact is strong only if the actual number shows a hefty difference compared to the forecast.
The most important day of the week for the Pound will be Thursday, when the Bank of England will release the Inflation Report as well as their decision regarding the interest rate and a Monetary Policy Summary that will outline the reasons that determined the rate decision. Later in the day, BOE Governor Mark Carney will hold a press conference, discussing the Inflation Report. As always, the pair’s direction will be directly influenced by the US events mentioned earlier.
Written by: Bogdan Giulvezan