Weekly Analysis: Big Week for the US Dollar: Fed Rate Decision and Non-Farm Payrolls
Weekly Analysis: US Dollar weakness continued throughout the entire last week and the pair made substantial advances to the north, reaching the key psychological level at 1.2500.
The pair is in a clear uptrend but the last two candles are showing long upper wicks and rejection at 1.2500; also the pair has traveled a long distance to the upside, taking the Relative Strength Index into overbought territory. All this suggests that we will see a move lower this week, possibly into the support at 1.2300 but a lot will depend on the key US data released during the week.
The week starts with a slow Monday but action picks up Tuesday when we take a first look at German inflation with the Consumer Price Index. Later the same day the US Consumer Confidence survey comes out, showing the opinions of consumers regarding overall economic conditions.
Wednesday President Trump will deliver a speech in Washington DC and although this may go mostly overlooked by the market, caution is still recommended. The FOMC will also release their interest rate Statement the same day. No change is expected for the rate but if the Statement contains hints about the next rate hike, the US Dollar is likely to react strongly.
The final cluster of events is the US jobs data scheduled Friday: the Average Earnings Index, the Non-Farm Payrolls and the Unemployment Rate. All these have a huge impact on the greenback and create volatility almost each time they are released, so caution should be used.
Similar to the Euro, the Pound posted large gains last week, partly due to US Dollar weakness and partly due to increased hopes for a “smooth” Brexit.
Since the bounce at 1.3450, the pair has moved straight up, without a proper pullback, which makes it extremely overextended and in need of a move lower. The Relative Strength Index is deep in overbought territory and the last candles are showing long wicks, which is another sign of rejection, so we will probably see a touch of the zone between 1.4050 – 1.4000. After this possible retracement is complete, bullish movement will probably resume.
The Pound has a lackluster week ahead, with only a few notable events. Tuesday BOE Governor Carney will testify before the House of Lords Economic Affairs Committee; Thursday the British Manufacturing PMI comes out, followed Friday by the Construction PMI. Carney’s testimony could be a strong market mover but the PMIs usually have just a minor impact on the Pound unless the actual figure differs a lot from expectations. As always, the US releases will have a direct and possibly strong impact on the pair.
Written by: Bogdan Giulvezan
The article above is based on the writer’s 8-year experience and it does not constitute trading advice or investment recommendations, just a personal opinion and view of the market.