WEEKLY ANALYSIS: IN THE SHADOW OF THE EPIC RATE DECISION
EUR/USD
Weekly Analysis: Last week price action was mostly bullish, on the back of a lackluster fundamental scene and US Dollar weakness, which generated a move above immediate resistance. Volatility increased in the second part of the week, mostly influenced by economic releases.
Technical Outlook
The pair is now trading above the 50 day Exponential Moving Average and above 1.1215 so the next logical destination is the important level at 1.1450. Both the Stochastic and the Relative Strength Index are moving upwards, supporting a continued move to the upside, at least until they approach extreme levels (overbought). A touch of resistance combined with a potentially overbought state of the oscillators may generate a move lower but the week’s direction will be heavily influenced by the huge Fed event.
Fundamental Outlook
Ahead of the major Fed rate decision, the markets will be influenced Tuesday by the German ZEW Economic Sentiment which is a survey of about 275 investors and professional analysts focused on their opinion regarding the 6-month economic outlook. The same day the U.S. Retail Sales are released so we have a busy day, with possibly strong movement.
Wednesday we take a look at American inflation as the U.S. Consumer Price Index is released and Thursday we will witness probably the most anticipated event of the year so far: the Federal Funds Rate decision. Since the beginning of the year, speculation has surrounded a potential U.S. rate hike and the most talked about date for such a change is finally here. An increase is anticipated, but even if it doesn’t occur, the US Dollar will move strongly at the time of the release, which will be accompanied by a Press Conference and a Rate Statement. It is likely to see irregular movement during the days preceding the Fed meeting so caution is recommended throughout the week.
GBP/USD
For almost the entire last week the Pound strengthened against the greenback and we saw a bullish pullback which is now close to resistance.
Technical Outlook
The pair is now approaching a heavy resistance zone represented by the 50 days Exponential Moving Average and the level at 1.5500. Both oscillators are still bullish but before the current up move, the bears showed great strength which may come back once 1.5500 resistance is touched. If this is true, 1.5330 will become the first target but keep in mind that the importance of the Fed rate decision will overshadow any technical scenario.
Fundamental Outlook
Apart from the Fed decision, the pair will be influenced by the British inflation numbers which come out Tuesday in the form of the Consumer Price Index, by the British Claimant Count (change in the number of people who applied for unemployment related help) released Wednesday and by the British Retail Sales scheduled for release Thursday. We expect a busy week, but it’s possible to see choppy price action until the Fed meetings.