Overall economic data released throughout last week favored the U.S. Dollar, a fact which created bearish price action and allowed the pair to move into 1.3700 major support zone. However, bears didn’t manage to break this level and price closed above it.
The picture remains bullish from a Daily chart perspective and the latest move south is at the moment just a retracement in an uptrend; however, a break of 1.3700 followed by a substantial move towards 1.3480 would severely weaken the uptrend. To the north, the first resistance is located at 1.3830. We have an important week ahead and S/R levels are likely to be broken on the back of major data releases which will also determine the direction of the breakout.
The Euro Zone Consumer Price Index will be released Monday, showing changes in inflation and having the potential to take the pair up if the estimated value will be surpassed. Fed Chair Yellen will speak later in the day; as always, speeches of heads of central banks can have a tremendous impact on the currency so sharp moves can be experienced during her speech. Tuesday’s main event is the release of the U.S. Manufacturing Purchasing Managers’ Index while Wednesday’s highlight is the release of the ADP Employment Change which often offers hints about the Government employment data announced 2 days later.
Thursday will probably be the busiest day of the week as the ECB will announce the Interest Rate decision and President Mario Draghi will hold a Press Conference during which he will read a prepared speech and will answer journalists’ questions. No change is expected for the Rate and the Q&A session at the Press Conference will most likely be surrounded by huge volatility and sharp turns so we recommend caution if trading at the time.
The trading week finishes Friday with the most important U.S. employment indicator: the Non Farm Payrolls. Almost always this indicator has a huge impact on the market as employment levels are crucial for consumer spending and economic activity. This indicator and the ECB Press Conference will most likely shape the medium term direction of the pair.
Last week’s main event for the Pound was the release of the Retail Sales which came out with a much higher than estimated value and fueled a move above the important level of 1.6600.
Last week we mentioned that Hidden Bullish Divergence was present between price and Stochastic, a technical factor which combined with positive economic data, took the pair above resistance. On a Daily chart the Stochastic is coming out of oversold territory and if the bulls can keep price above 1.6600, proving the break was real, we are likely to see higher prices. The main levels to watch this week are 1.6750 and 1.6600 but the technical aspect will be secondary to the fundamental one.
Bank of England Governor Mark Carney will speak Monday at a press conference in London, bringing potential volatility in the market, depending on the subjects discussed. The rest of the week will be focused on Purchasing Managers’ Indexes: Tuesday the Manufacturing PMI is released, followed Wednesday by the Construction PMI and Thursday by the Services PMI. Better numbers for these indicators show an improving state of the economy and have the potential to strengthen the Pound.