Without a doubt the market was heavily influenced by the US events which took place yesterday and especially by the Fed’s decision to cut the bond-buying program by another 10 billion US Dollars, a fact which was anticipated but created volatility nonetheless.
Yesterday’s bearish move took the pair below 1.3830 support and also opened the door for the start of a medium-term downtrend. However, such a strong move is prone to a retracement higher which will most likely occur once the Stochastic will indicate an oversold condition. Even if we anticipate a bullish retracement, our bias on the pair is bearish, given the fact that US Dollar’s gains are based on strong fundamental events such as Fed’s prediction for a 1% interest rate by the end of 2015.
The focus remains on the US for the release of three economic indicators: the Unemployment Claims come out at 12:30 pm GMT and are expected to increase from the previous 315K to 327K. Such a change is considered detrimental for the American economy and consequently for the greenback, which is expected to weaken against its counterparts if higher numbers are posted. The Existing Home Sales numbers will be announced later in the day, at 2:00 pm GMT, with an anticipated increase to 4.65M from the previous 4.62M. The indicator shows how many homes were sold during the previous month, without taking into consideration new buildings; a higher value is indicative of a thriving economy and a potentially stronger US Dollar.
The Philly Fed Manufacturing Index will also be released at 2:00 pm GMT; this is a survey derived from the opinions of approximately 250 manufacturers and acts as an indicator of economic health which suggests optimism if better than estimated values are posted. For today’s release, analysts expect a hefty increase to 4.2 from the previous -6.3.
The pair was also affected by the Fed decisions regarding monetary policy and as a result, 1.6600 was broken decisively after a previous climb above this level during the day. The anticipated strong move finally occurred and the market seems to have a clear direction now.
After a relatively long period, the pair finally managed to break the horizontal channel created between 1.6600 and 1.6750; we anticipate this break to generate lower prices and consider 1.6250 the next major support (not a target for today’s session). The 200 Exponential Moving Average will most likely act as dynamic resistance and the level of 1.6600 will become static resistance, but we don’t anticipate price to touch this level today as momentum clearly belongs to the bears.
The Pound has a rather slow day ahead in terms of data releases so center stage will be held by the US events and the technical aspect of the market.