Weekly Analysis: Last week belonged to the bears again as we witnessed the end of the bullish retracement followed by a move below support. The previous low was not broken and the U.S. NFP triggered irregular movement although the value was better than anticipated.
The resistance zone near 1.1150 was tested several times but it proved a barrier too tough to break and the pair soon started to move lower. Price is currently below 1.1060 but the last daily candle shows clear signs of indecision, having long wicks in both its upper and lower parts. Despite this indecision, this week we expect a move into 1.0911 and a potential break of this support. As an alternate scenario, if the pair starts to move north, we expect it to find resistance at the 50 period Exponential Moving Average.
The week ahead starts Monday with the Eurogroup Meetings, attended by central bankers and key political figures from the EU member states and continues with the Final German CPI released Tuesday. The CPI is the main gauge of inflation but the Final version is the least important so we don’t expect it to be a major market mover.
Wednesday we don’t have anything big on the economic calendar but Thursday action picks up with the release of the American Producer Price Index, which shows the changes in the price charged by producers for their goods and services. This indicator can have inflationary implications because a higher producer price usually leads to a higher price paid by consumers.
Friday is the busiest day of the week as three major U.S. indicators are released: the Consumer Price Index, which is a major gauge of inflation, the Retail Sales and the University of Michigan Consumer Sentiment Survey. All three can strongly affect the greenback, with higher numbers being beneficial for the economy.
The Pound took another blow last week and dropped for 500 pips, reaching a new several decades low at 1.2796.
Last week’s drop took the Stochastic and Relative Strength Index in deep oversold territory and this calls for a retracement higher. This potential retracement should find resistance around the 1.3100 mark but the Pound remains a high risk currency and price can shoot through support or resistance without warning. The overall control belongs to the bears, so we favor the short side but the Bank of England is going to announce the interest rate this week and this will overshadow the technical aspect.
Tuesday the Inflation Report Hearings take place, with BOE Governor Mark Carney answering questions regarding the Inflation Report. Usually this event creates strong volatility and considering the current situation, we expect it to do the same this time.
Thursday we are preparing for another price storm because the Bank of England will announce the interest rate, which is expected to drop from the current 0.50% to 0.25%. If this comes true, we will possibly see another dip for the pound-dollar pair but nothing is certain and extreme caution is advised. The rate decision will be accompanied by a Monetary Policy Summary which will outline the reasons that stood behind the decision.
Written by: Bogdan Giulvezan