The bulls had a great run last week and managed to take the pair more than 200 pips north, following an almost perfect bounce off 1.3700 support. Each day of the week closed higher and the bears lacked power almost completely.
The resistance located at 1.3830 was broken during last week’s rally and a retest of this level is expected this week. If this retest results in a bounce higher, 1.3830 will become support and 1.3967 will be the first target for bullish price action. The level of 1.4000 is also an important psychological barrier that will act as resistance if price reaches it. A move below 1.3830 would suggest that bulls’ control is fading away but does not necessarily mean the main direction will change.
The first important event of the week ahead is Monday’s release of the US Retail Sales which usually has a strong impact on the greenback because sales made at a retail level make up for about one third of overall consumer spending. Values that surpass estimates are considered bullish for the U.S. Dollar.
Tuesday’s main indicator comes out of the U.S. as well, in the form of the Consumer Price Index which is the main gauge of inflation. The Fed assesses levels of inflation when making the interest rate decision, hence the importance of this indicator. The same day the German ZEW Economic Sentiment is announced; this is a survey based on the opinion of about 275 German professional investors and analysts who are better informed on economic matters than the general public due to the nature of their jobs.
The Euro Zone Consumer Price Index comes out Wednesday and will probably have a big impact on the pair’s movement for the same reasons outlined above for the U.S. Consumer Price Index. The Philly Fed Manufacturing Index will be released Thursday, offering insights into the health of the Manufacturing sector in Philadelphia. Although it is focused on a single district, the indicator usually has a hefty impact on the U.S. Dollar. Friday most banks around the world will be closed, celebrating Good Friday and no economic indicators will be released; also, the market may suffer from illiquidity, sudden surges of volatility and irregular movement.
The British economy posted much better than estimated Manufacturing data last week, spurring interest for the Pound and generating a strong bullish move which took the pair above resistance.
The last time the pair visited the current level was in the year 2009 and this makes 1.6820 a crucial resistance, especially because a double top formation is present. This formation (which predicts a bearish move), combined with last Thursday’s Doji candle (which usually indicates indecision) is likely to generate an extended move lower. Although these bearish signs are present, the bulls are in control of the pair and another run for 1.6820 is probable.
Just like the Euro Zone and the United States, the United Kingdom will release this week the Consumer Price Index (higher values usually strengthen the currency). The event is scheduled Tuesday and is followed Wednesday by the UK Claimant Count Change which shows fluctuations in the number of unemployed people during the previous month. Throughout the week the pair will be affected by the U.S. releases and Friday, UK banks will be closed in celebration of Good Friday.