Last week had a slow start, with price trading in a narrow range for the first couple of days. However, Fed’s decision to trim the bond buying program by another 10 billion US Dollars combined with predictions of a 1% Rate until the end of 2015 generated an abrupt fall and a break of major support.
The break of 1.3830 favors the bears and puts them in control of the pair for the moment but we must note the fact that the Daily trend is still bullish so moves north are not out of the question. Our outlook for the pair is bearish and we anticipate a touch of the next support zone located at 1.3700; a break of this level would be a great victory for the bears and if it occurs, we might be dealing with a full scale reversal, not a simple retracement lower in an uptrend. The first level of importance to the up side is 1.3830 while support is located at 1.3700 and 1.3480.
We have a pretty busy week ahead, with the first important release being the German Manufacturing Purchasing Managers’ Index (PMI) which comes out Monday and shows the opinion of about 500 German purchasing managers regarding business conditions in the manufacturing sector. Better numbers are indicative of a thriving economy and possibly a stronger euro.
Tuesday’s highlights are the German Ifo Business Climate and the US Consumer Confidence; both are leading indicators of economic health and are based on a large sample, a fact which makes them accurate and reliable. The US Consumer Confidence tends to have a bigger impact than the German Business Climate because it also acts as a leading indicator of consumer spending.
The United States will release Wednesday the Durable Goods Orders, a leading indicator of production which also offers insights into the state of the American economy. Goods which last three years or more (these are considered “durable goods”) usually require a larger investment from the part of the buyer and reflect consumer confidence regarding economic conditions; also a higher reading posted by the indicator means that production will increase to satisfy demand.
Thursday is a quiet day in terms of economic indicator releases but Friday an important indicator is released: the German Preliminary Consumer Price Index. This is considered the main gauge for inflation and has the potential to be a significant market mover because inflation outside certain thresholds may determine the ECB to modify the interest rate in order to counter its effects.
Last week we witnessed the much anticipated break of 1.6600 support and we had clear bearish direction. This move was generated by US Dollar strength triggered by the Fed decisions but technical factors also played an important role.
Price is trading above the 200 Exponential Moving Average and higher highs were constantly printed over the last period so from a Daily chart perspective the market is in an uptrend. Furthermore, Hidden Bullish Divergence is present as we see a higher low on price while the Stochastic oscillator already made a lower low (this divergence can disappear if price moves below the previous low). Although the momentum favors the bears, the things mentioned above must be taken into consideration as well. The first major support is located at 1.6250 while 1.6600 will most likely act as resistance.
Two major releases are the headlines of the week ahead for the Pound: the first is the Consumer Price Index which comes out Tuesday and is the most important measure of inflation, one which may determine a future interest rate adjustment if its value goes outside certain ranges. The second indicator comes out Thursday in the form of the UK Retail Sales. Consumer spending is a crucial part of the economy and sales made at a retail level account for the majority of such spending, making this indicator a high-impact one. The US events mentioned earlier will have a direct impact on the pair as well.