The bearish momentum was continued throughout yesterday’s trading session and the sellers solidified their control after a brief retracement higher. US economic data was overall better than anticipated, and the main performer was the Manufacturing Index which posted a value of 9.0, surpassing the estimated 4.2.
Yesterday’s drop and the fact that 1.3830 was decisively broken makes 1.3700 the first target for the bears. Before this target can be reached, we anticipate another retracement higher considering the fact that the Stochastic is below the 30 level which indicates an oversold condition of the market; bearish movement will probably be resumed once the oversold condition is cleared but there’s a distinct possibility of a slow day, given the fact that we already had two days characterized by strong movement.
At 3:00 pm GMT the Euro Zone Consumer Confidence is announced and expected to change from -12.7 to -12.3; usually better than estimated numbers are beneficial for the Euro as consumer confidence is a leading indicator of consumer spending which accounts for the biggest part of economic activity in Europe. The indicator is not considered to have a high-impact so the market’s reaction will probably be mild unless a surprising figure is posted.
The US Dollar continued to strengthen against the Pound yesterday and the pair dropped but the move was considerably weaker than the one seen a day before. The US data released during the day didn’t have a major effect on price action and just a limited bearish impulse was seen at the time of the release.
Our outlook remains bearish for the pair but we expect short term moves north which are needed before price can travel lower. Friday may be profit-taking day for the sellers and since all Sell orders are closed with a Buy, higher prices are probable. Yesterday’s price action created potential support at 1.6480 while resistance sits at 1.6565 but these are minor levels and their strength is yet to be tested.
United Kingdom’s Public Sector Net Borrowing is released at 9:30 am GMT and estimated to increase from the previous -6.4B to 7.8B, a fact which will be detrimental for the Pound because a figure above zero indicates budget deficit and hence a contracting economy. The indicator doesn’t always have a strong impact on the market but higher than estimated values can take the pair lower.