The pair broke resistance in a decisive manner yesterday and a new high was printed at 1.3966 as ECB officials indicated support for the Euro Zone’s economic recovery. Although the US Retail Sales posted higher than anticipated figures, the greenback didn’t strengthen enough to take the pair significantly lower.
The first major level of interest to the north is the round number and psychological resistance located at 1.4000. Yesterday’s high at 1.3966 will most likely act as minor resistance while potential support sits at 1.3915. Although the pair is in a clear uptrend, the Stochastic is indicating an overbought condition on three time frames (Hourly, Four-hour and Daily) so a stronger retracement to the down side is a distinct possibility. Also keep in mind that six weeks price traveled north and profit taking after such a bullish rally may generate moves lower.
The German Consumer Price Index is announced today at 07:00 am GMT but no change is anticipated from the current 1.2%. The indicator measures the change in prices paid by consumers for the goods and services they purchase and is the main gauge of inflation for the German economy which is the backbone of the entire Euro Zone. Although today’s version of the indicator has a mild impact on the pair, higher values usually strengthen the Euro.
The US Consumer Sentiment will be released by the University of Michigan at 1:55 pm GMT with an estimated increase to 81.9 from the previous 81.2. The indicator draws its importance from the fact that consumer sentiment is indicative of future consumer spending which represents about two thirds of the entire US economic activity. Under normal circumstances, higher-than-estimated values strengthen the US Dollar and take the pair lower.
The confluence zone located at 1.6600 proved a strong barrier in front of falling prices and generated yesterday a substantial bounce higher. Speculation that Bank of England may increase the interest rate sooner than anticipated helped the rally as well.
The current rally is likely to continue towards the resistance located at 1.6750 but we consider that first a touch of 1.6640 is in order after yesterday’s bullish impulse. If the mentioned level is broken to the down side, we are likely to see another attempt to break the major 1.6600 support. Keep in mind that on a four hour chart, the Stochastic is coming out of oversold territory and the two lines are spread apart, indicating that bulls have momentum on their side.
The British Trade Balance (difference between exported and imported goods) is announced today at 09:30 am GMT. The anticipated figure is -8.7 billion Pounds while the previous was -7.7 billion Pounds and since this in an indicator of economic health, better than estimated numbers have a positive impact on the Pound. The US events mentioned above will directly affect the pair as well.