Weekly Analysis: The most important day of last week was Wednesday when the FOMC Minutes came out, showing optimism about a potential rate hike in June. This strengthened the US Dollar, driving the pair below support and generating an overall bearish week.
The 50 period Exponential Moving Average was broken decisively last week and this could be the beginning of an extended period of bearish movement. Currently price is trying to break the barrier at 1.1210 and if it manages to do so, we expect it to drop towards 1.1060; however, the oversold condition of the Stochastic plays against this scenario and may trigger a bullish retracement (the RSI is also close to oversold). Our bias for the week is bearish as long as the pair remains below the 50 days EMA but we expect some bullish retracements.
The first event on the calendar is the release Monday of the Eurozone Manufacturing PMI, a survey of about 3,000 purchasing managers that asks respondents to give their opinion on the business conditions in the manufacturing sector. Tuesday we have the German ZEW Economic Sentiment (a survey of about 275 German analysts and professional investors regarding their 6 month outlook for Germany) and the same day the Eurogroup Meetings start.
Wednesday is another day for surveys, with the highlight being the German IFO Business Climate. It has a large sample of about 7,000 businesses and this makes it a high impact indicator but usually the effect is limited if the actual number matches analysts’ expectations. Thursday we turn to the U.S for the release of the Durable Goods Orders (goods with a life expectancy of at least 3 years) and Friday we remain on the US Dollar side for the release of the Preliminary version of the Gross Domestic Product, which is considered the main gauge of overall economic performance.
The Pound got a boost from a poll that showed that a Brexit is less probable and that the majority of surveyed people would rather remain in the EU. Most of the gains were erased Friday when the greenback strengthened.
The pair bounced almost perfectly at 1.4650 and now the bears are struggling to break the support at 1.4500. If they manage to do so, we expect a move into 1.4350; a break of the bullish trend line seen on the chart above would suggest that the pair will enter a period of bearish movement. The 50 period Exponential Moving Average is close to the mentioned support zones, adding strength to them and making a break more important.
The Pound has a slow week ahead, with only two notable releases: Tuesday the Public Sector Net Borrowing numbers come out and Thursday the Second Estimate Gross Domestic Product is released. The former indicator shows the difference between spending and income for public corporations and government during the previous month while the GDP is the main gauge of economic performance, thus it has a strong impact on the currency.
Written by: Bogdan Giulvezan