Weekly Analysis: Last week belonged to the bears, who managed to bring the pair significantly lower after a bounce at resistance. Fed Chair Yellen’s speech at the Jackson Hole Symposium was interpreted as positive for the US Dollar and it became the biggest market mover of the week.
The pair finished last week right on the 50 days Exponential Moving Average and below 1.1210, with both oscillators moving down and coming from overbought. The position and direction of the oscillators indicate that the pair will continue to move south but the 50 days EMA and its vicinity to price may be a reason to believe that a move up is next. Early in the week we will probably find out if we are dealing with a bounce or break; the former will likely take the pair back up into 1.1340 and if the latter comes true, we may see advances towards 1.1060.
The week starts with a slow Monday, but continues Tuesday with the always important German Consumer Price Index, a key measure of inflation. The same day the Consumer Confidence survey will affect the US Dollar and Wednesday we take a first look at the American jobs market with the release of the ADP Non-Farm Employment Change. This version is released by Automatic Data Processing (ADP) and excludes from calculation government jobs and the farming industry.
Thursday is a slow day for the Euro and on the US Dollar side we have the Manufacturing PMI, a survey of purchasing managers that tries to gauge their opinions regarding the health of the manufacturing sector. Friday will be the busiest day of the week, with the main event being of course the Non-Farm Payrolls, a report that tracks changes in the total number of employed individuals, excluding the farming industry. Usually this release creates high volatility and possibly irregular movement, so caution is recommended.
After a perfect bounce at resistance, the pair had 2 bearish days that erased most of the Pound gains obtained earlier in the week. The pair still finished higher than it started the week but the balance of power is not heavily tilted towards either side.
The resistance at 1.3280 combined with the 50 days Exponential Moving Average created a strong confluence zone that rejected the bullish advance with pin-point accuracy. The move down is likely to extend into the support at 1.3070 and there the next medium term direction will be decided: a break will make 1.2865 the next target, while a bounce higher will open the door for another encounter with 1.3280.
The Pound has a light economic calendar ahead, with the only notable releases being the Manufacturing PMI and the Construction PMI that come out Thursday and Friday respectively. Both act as leading indicators of economic health, with higher numbers strengthening the Pound. As always, the U.S. events will have a direct and possibly strong impact on the pair.
Written by: Bogdan Giulvezan