Weekly Analysis: Last week we experienced interesting price behavior, with the pair climbing fast but dropping the entire distance back to where it started by the end of the week. Most of the Euro weakness was generated by Mario Draghi’s press conference and his comments which were perceived as dovish.
The resistance at 1.0850 and the 50 days Exponential Moving Average were breached last week but soon after, price returned below these technical levels and now the pair is testing the key support at 1.0525. If 1.0525 is broken, the next target is 1.0460, a level that was last tested in 2015 and before that, in 2003 so we can say that the bears will score a major victory if they manage to break the level. The latest impulse is bearish but last week’s price action was hectic so a clear prediction is hard to make. If 1.0460 is touched, we expect small bounces to occur but the Fed rate decision will play a major role for the next direction.
The German ZEW Economic Sentiment survey released Tuesday is the only major indicator of the first 2 days of the week but Wednesday action intensifies with the release of the U.S. Retail Sales and more importantly, the FOMC will announce their decision regarding the interest rate. Some analysts expect a rate increase but even if this is not the case, the event will surely create strong movement. Half an hour after the rate is announced, Fed Chairwoman Janet Yellen will hold a press conference, discussing the rate vote and answering journalists’ questions.
Thursday we take a look at U.S. inflation with the release of the Consumer Price Index (CPI), which is another reason for increased volatility and the week ends Friday with the Final version of the Eurozone CPI. Although this is the least important out of the three versions, the Euro is likely to respond strongly to the data. The U.S. Building Permits are the last indicator of the week, released Friday as well.
Last week the pair reached a high at 1.2775 then dropped 200 pips lower to end the trading week at 1.2575. The 50 days Exponential Moving Average is not broken but the bears control short term action.
The pair’s behavior last week was bearish but the key support represented by the 50 days EMA and the level at 1.2480 wasn’t broken. A bullish trend line also supports price so we have three major elements that stand in front of falling price and the possibility of a push up shouldn’t be overlooked. On the other hand, a break of this confluence zone will show that the selling pressure is high and would make our bias for the week bearish.
The first Pound-affecting release of the week is scheduled Tuesday in the form of the British Consumer Price Index, the main measure of inflation. The indicator usually has a high impact on the Pound’s direction, with higher numbers strengthening it. Wednesday’s highlight is the release of the Claimant Count Change, an indicator which shows changes in the number of people who asked for unemployment related benefits during the previous month.
Thursday we take a look at British Retail Sales numbers and the Bank of England will announce the interest rate (no change expected). At the same time the MPC Members’ votes are released, as well as a Monetary Policy Summary that contains details of the reasons that determined the rate decision. Friday we don’t have major indicators and as always, the U.S. releases will have a direct and possibly strong impact on the pair.
Written by: Bogdan Giulvezan