Weekly Analysis: Last week started on a strong bullish note, with price spiking above 1.1450 resistance before making a sharp turn near 1.1615. The U.S. jobs report disappointed but despite this fact, the bulls didn’t manage to take back control.
Even if the latest move is down, we must note that the pair is making higher highs and is trading above the 50 days Exponential Moving Average so we are still in a bullish market. This suggests that once support is reached, we may see a bullish bounce and the first place where this can happen is the 1.1335 level; by the time price reaches it, probably the moving average will climb and will be in close vicinity, thus creating a confluence zone that will increase the probability of a move north. On the other hand, a break of this zone would suggest that price is headed towards the zone around 1.1200, suggesting that the uptrend is coming to an end.
The week ahead lacks major fundamental events, especially in its first part. It is worth mentioning that Monday the Eurogroup Meetings take place, attended by key figures from the political and financial scene, but Tuesday and Wednesday are slow days, with nothing important on the calendar. Thursday the U.S. Unemployment Claims will reveal the number of persons who applied for unemployment related aid, but this indicator is released each week and that’s why its impact tends to be mild; however, a higher number can weaken the US Dollar to some extent.
Friday is the busiest day of the week, with the release of the German Preliminary Gross Domestic Product and also the U.S. Retail Sales. Both are key indicators of economic health and can strongly affect the respective currency, with higher numbers being beneficial. The same day the University of Michigan will release a Consumer Sentiment survey, which is indicative of future consumer spending levels.
British economic data released throughout last week failed to meet expectations and this played an important role in the bearish action and the move below 1.4500.
The strong bounce at 1.4765 combined with the overbought position of both the Stochastic and Relative Strength Index makes us anticipate further downside movement. The first potential barrier in front of falling prices is the 50 days Exponential Moving Average but if this line is broken, we expect to see a touch of the bullish trend line seen on the chart above. To the upside, 1.4500 is the first potential resistance, followed by 1.4650 but our bias is bearish for the week ahead.
Wednesday the British Manufacturing Production comes out, showing changes in the total value of output generated by the manufacturing sector but the most important day of the week will be Thursday when the Bank of England will release their Inflation Report, the interest rate decision and a Rate Statement. The inflation report shows BoE’s projection regarding economic growth and inflation for the next 2 years and later in the day Governor Mark Carney will hold a press conference, discussing the contents of the report. As for the rate, this is not expected to change but volatility is usually generated by the event.
Written by: Bogdan Giulvezan