Weekly Analysis: The European Central Bank Takes Center Stage: Interest Rate Decision and Press Conference
Weekly Analysis: The bulls remained in control and the pair closed last week strongly, on the back of a US Dollar sell-off triggered by weak inflation and retail sales data. However, Friday’s climb couldn’t take out the weekly top at 1.1490.
Price is now facing a cluster of resistance levels (1.1450 – 1.1490) and the uptrend is overextended, meaning that the pair travelled a long distance without a proper pullback. The Relative Strength Index first became overbought back in April and since then, it never visited the lower levels (now it is approaching overbought on a Weekly chart as well).
All this makes us anticipate a retracement this week, and possibly an encounter with 1.1350, followed by the 50 days EMA. However, it is very important to note that the pair is in a strong uptrend and the RSI has been overbought for a long time and price still continued higher, so the possibility of another bullish week shouldn’t be overlooked. Next strong resistance is in the 1.1600 area.
The first notable release of the week is the European Final version of the Consumer Price Index, scheduled Monday. Although this version is the least important out of the three, the CPI remains a high impact indicator because it’s the main gauge of inflation for the Eurozone.
Tuesday the only highlight for the Euro will be the release of the German ZEW Economic Sentiment, a survey of about 275 German investors and analysts, focused on their 6-month outlook for the economy. Lately this indicator has lost some of its impact but higher numbers suggest optimism and strengthen the Euro.
Wednesday is a slow day, with the only release being the U.S. Building Permits, an indicator that shows how many permits for new buildings were released during the previous month. It offers some insights into the U.S. house market but the impact is not always high.
Thursday may be the most volatile day of the week as the ECB meets to announce their interest rate and ECB President Mario Draghi will hold his usual press conference. The rate is not expected to change but the press conference usually triggers strong movement, especially if Draghi will offer hints about the next hike.
After a brief dip below the 50 days Exponential Moving Average, the bulls took control and finished the week more than 200 pips above the open. Most of the climb was generated by weak U.S. CPI and Retail Sales data.
The resistance at 1.3050 was an important level and the breakout seen last week is likely to generate an extended move to the upside. The next resistance is located around 1.3250, followed by 1.3350 and the key level at 1.3450 but price will most likely retrace lower before the first resistance is reached. It’s also very possible to see a re-test of the recently broken resistance and if this re-test is successful (price bounces at 1.3050), then the level will turn into support and the chances of an extended climb will increase.
The Pound will be affected by only two important releases this week. The first is the British Consumer Price Index, which is scheduled Tuesday and the second is the Retail Sales, coming out Thursday. The CPI is the main gauge of inflation and is closely watched by the Bank of England when they decide the interest rate; on the other hand, sales made at retail levels represent the majority of consumer spending, which in turn accounts for a large part of the entire economic activity, so we can expect to see strong movement when these indicators are released.
Written by: Bogdan Giulvezan
The article above is based on the writer’s 7-year experience and it does not constitute trading advice or investment recommendations, just a personal opinion and view of the market.