Weekly Analysis: Last week belonged to the bears, with the last 2 days being the most active. Euro weakness was mainly generated by the ECB Meeting and Draghi’s press conference.
The June low created by the Brexit vote was taken out last Friday and it looks like the pair’s next destination is the key support zone around 1.0800. The Relative Strength Index is just entering oversold and the Stochastic is already there so we expect a bullish retracement to come when the 1.0800 mark is touched or even sooner. The previous support levels (1.0955 and 1.0910) may turn into resistance and reject a possible move up; if these levels become resistance, the chances of a move into 1.0800 will increase.
The first day of the week ahead is focused on Eurozone Manufacturing and Services PMI but these are medium impact indicators so we don’t expect strong movement. Action picks up Tuesday with the release of the German IFO Business Climate, a well respected survey due to its large sample of about 7,000 businesses. On the US Dollar side we have the Consumer Confidence, another survey focused on the opinions of respondents regarding overall economic conditions.
The next major release comes Thursday in the form of the U.S. Durable Goods Orders, followed the same day by the U.S. Pending Home Sales and the week ends Friday with the release of the German Consumer Price Index and the Advance version of the U.S. GDP. The last two events of the week may have the strongest impact because one measures inflation and the other is the main gauge of an economy’s performance, both key elements for a currency’s strength.
The Pound moved in a range last week, with some strength generated by better than expected inflation data; however, most of the gains were erased later in the week.
The pair is under bearish pressure and we expect to see a move closer to 1.2090 this week. It must be noted that the Relative Strength Index is still in oversold territory and the bears had difficulties breaking 1.2090 in the past. This may push price higher once (and if) the mentioned support is touched again but the pair is in a downtrend so our overall bias is bearish.
Tuesday the Pound is likely to show increased volatility and irregular movement because Bank of England Governor Mark Carney will testify on the consequences of the Brexit vote before the House of Lords Economic Affairs Committee. We recommend extreme caution at the time.
The other important event of the week is the release of the British Gross Domestic Product, scheduled Thursday. Although we only have 2 major events for the Pound this week, both of them have the potential to generate strong movement; as always, the U.S. releases will directly impact the pair’s direction.
Written by: Bogdan Giulvezan