Weekly Analysis: Retracements or Reversals? US Dollar Shows Mixed Signals Ahead of FOMC Minutes
Weekly Analysis: Last week the pair descended into the area between 1.1713 – 1.1700 but worse than expected U.S. inflation data weakened the US Dollar later in the week, so the pair bounced at support, moving higher.
Price is in a strong uptrend and the drop from 1.1875 to 1.1713 is considered a normal retracement after a long period of bullish movement. As long as the pair is trading above the 50 days Exponential Moving Average, with price making higher highs and higher lows, we consider the uptrend intact and we anticipate another encounter with 1.1875. If this resistance is broken, the next target will become the psychological resistance at 1.2000 (big, round number) but a bearish break of 1.1713 – 1.1700 would hinder this scenario.
Monday is a slow economic day for both currencies and Tuesday, French and Italian banks will be closed due to Assumption Day, so we can expect irregular volatility during the European session. The first important release of the week will be the U.S. Retail Sales, scheduled Tuesday.
Wednesday we have the Flash Gross Domestic Product on the Euro side and the US Dollar will be affected later in the day by the FOMC Meeting Minutes, a document that contains the details of the latest FOMC Meeting and reasons for the latest rate vote.
Thursday the U.S. Industrial Production will show changes in the total value of goods generated by the manufacturing, utility and mining sectors. The week ends Friday with the University Of Michigan Consumer Sentiment, which is a survey that tries to gauge the opinions of about 500 consumers regarding current and future economic conditions.
The pair continued to drop after the bounce at 1.3250 resistance but encountered support at 1.2950 and started to move in a range, without clear direction for most of last week.
The 50 days Exponential Moving Average is flat and price is trapped inside a horizontal channel with 1.3050 as upper limit and 1.2950 as lower limit. Until one of these barriers is broken decisively, our view is neutral and we expect more of the ranging movement seen last week. Once the pair exits the channel, the first lower target will become 1.2850 followed by 1.2770; the upper target will be 1.3250 but such a big move will have to be supported by some positive British economic news.
We have a busier week than the one before, with three major releases for the Pound. The Consumer Price Index comes out Tuesday, showing changes in the price paid by consumers for the goods and services they purchase. This is also the main gauge of inflation, so its impact is usually very high.
Wednesday the Average Earnings Index will show changes in price that businesses pay for labor and Thursday the British Retail Sales come out, showing changes in the total value of sales performed through retail outlets. All these are high-impact indicators that will probably trigger strong movement on the pair.
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.