Forex Technical Analysis: Price direction governed by Interest Rates and Non Farm Employment Report
Forex Technical Analysis: The first part of last week was characterized by irregular movement and closed market due to New Year’s Eve and first day of the New Year but once trading resumed the bears took control of the pair, breaking two important levels of support.
After several attempts at breaking the resistance located at 1.3830, the pair finally started to move to the downside, easily breaking 1.3710 and 1.3650 resistance levels. This indicates that bearish pressure has been building and that sellers are ready to shift the balance of power in their favor. The first target of the pair is 1.3455 followed by 1.3295 and the recently broken levels may turn into resistance if touched again from below.
The first event of the week is Monday’s release of the US Non Manufacturing PMI which is a leading indicator of economic health but excludes the manufacturing sector. Later in the day the US Senate will vote pro or against the nomination of Janet Yellen as Federal Reserve Chairperson, an event which may trigger increased volatility.
Tuesday the German Unemployment Change comes out, offering insights into the employment situation of Europe’s most influential economy and Wednesday’s most significant event will be the release of the FOMC Meeting Minutes. The Minutes reveal details about the reasons which determined the members’ latest vote regarding the interest rate.
Thursday is the busiest day of the week as the European Central Bank will announce their interest rate decision which will be followed by a Press Conference. ECB President Mario Draghi will speak at this conference and he will also answer audience questions; this second part of the conference usually creates the strongest volatility of the day as traders try to interpret his answers.
The trading week finishes Friday with the most important US employment indicator: the Non Farm Employment Change. The report measures fluctuations in the number of employed people excluding the farming sector and it is considered an extremely high impact indicator which can strengthen the US Dollar if higher than anticipated numbers are posted.
Throughout last week the United Kingdom showed slightly worse than anticipated data, a fact which weakened the Pound and allowed the pair to move lower.
The resistance formed around 1.6550 is holding strong and the first week of the year brought us a bounce lower off this level. Although the pair is in an uptrend on a Daily chart, the latest move down shows that the bears are making an attempt to reverse this trend. If they succeed, the first target is the support located at 1.6250 and a break of this level would bring the pair back into the ranging zone created between the mentioned level and 1.5915.
Early Monday morning the United Kingdom releases the Services Purchasing Managers’ Index which shows the performance of the services sector as perceived by purchasing managers and acts as a leading indicator of economic health. The main event is the announcement of the Official Bank Rate which occurs Thursday and usually creates strong movement although no change is anticipated.
The last UK event of the week comes out Friday in the form of the Manufacturing Production which holds a great importance as manufacturing represents about 80% of all Industrial production and tends to have a strong impact on the Pound. The important US events of the week will directly affect the pair’s direction as well.
Written by: Bogdan Giulvezan
The article above is based on the writer’s 5-year experience and it does not constitute trading advice or investment recommendations, just a personal opinion and view of the market.
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