Weekly Analysis: Last week the Fed announced that they will begin balance-sheet reduction in October, thus the US Dollar strengthened and seemed on its way to break 1.1875 support and possibly the 50 days EMA. However, momentum faded soon after the announcement and the pair climbed back into resistance.
The pair is stuck between 1.2000 resistance and 1.1875 support but it is still in an uptrend since a lower low has not been formed yet and the 50 days Exponential Moving Average is still below price. Before a stronger move can be seen, the pair must break out of the two mentioned S/R levels; if 1.1875 is broken, price will move into the 50 EMA and if 1.2000 is broken, price will probably touch the next resistance, located at 1.2070. The short term bias is neutral, in expectation of a breakout.
The Euro will probably be affected early in the week by the German Federal Elections that were held Sunday. The first release is scheduled Monday in the form of the German IFO Business Climate, which is a survey with a very large sample size of about 7,000 businesses that tries to gauge the respondents’ opinions regarding a 6-month outlook for the economy. Same day, ECB President Mario Draghi will testify before the European Parliament Economic and Monetary Affairs Committee about monetary issues and the economy.
Tuesday the most notable release will be the CB Consumer Confidence, which is another survey with a large sample size of about 5,000 American households, focused on the respondents’ opinions about the overall economic situation.
Wednesday is a lackluster day for the Euro and on the US Dollar side we have the Durable Goods Orders, an indicator that shows changes in the value of purchase orders placed for goods with a life expectancy of at least 3 years.
Thursday action picks up with the release of the German Preliminary Consumer Price Index (main gauge of inflation) and the U.S. Final Gross Domestic Product. Although the final version has the lowest impact, it shouldn’t be overlooked because the GDP is the main gauge of overall economic performance.
Friday the spotlight will be on the Euro for the release of the Flash Estimate European Consumer Price Index and the German Retail Sales; these are indicators with a medium impact, but important nonetheless.
The Pound had an interesting week, jumping above 1.3616 on the back of better than expected Retail Sales and then soon retreating lower. Prime Minister May’s speech triggered another touch of 1.3450 support as she iterated that the UK will be leaving the single market and the customs union.
The fact that the UK will be leaving the single market and the customs union may attract a negative sentiment around the Pound, so we may see a break of 1.3450, followed by lower prices. Both the Relative Strength Index and the Stochastic are in overbought territory and slowly turning down, showing that the pair still needs a deeper pullback. If 1.3450 is broken, the next potential support and target will become 1.3250 but overall the pair is still in an uptrend so we cannot rule out a break of 1.3616.
BOE Governor Mark Carney will deliver two speeches this week, one Thursday (opening remarks at the Bank of England's conference celebrating 20 years of independence) and one Friday (closing remarks at the same conference). We don’t know how exactly these speeches will affect the Pound but caution is recommended as always.
Also Friday two indicators will be released: the Current Account and the Final Gross Domestic Product. The former shows the difference in value between imported and exported goods, while the latter is the main gauge of economic performance but the Final version tends to have a limited impact.
Written by: Bogdan Giulvezan