FOREX TECHNICAL ANALYSIS: ECB INTEREST RATE � A TURNING POINT AHEAD
EUR/USDForex Technical Analysis: Last week we experienced slow movement due to bank Holidays and mixed economic data. No major developments took place and the week ended close to its opening price.
Technical Outlook
The Relative Strength Index on a Daily chart is coming out of oversold territory, increasing the chance of a retracement higher. Last week�s low located at 1.3585 will act as minor support this week, while resistance is located at 1.3700 but price direction this week will be heavily influenced by the ECB�s decision regarding further monetary policy easing.
Fundamental OutlookThe week starts Monday with an important inflation indicator: the German Preliminary Consumer Price Index and continues Tuesday with an even more important one: the Euro Zone Consumer Price Index. Inflation has been a major concern of the ECB lately because it�s highly correlated with a potential rate change so the release may have a higher impact than usual.
Wednesday the Group of 7 (G7) meetings start and the US will release the ADP Non Farm Employment Change, a report put together by a private company, which tries to mimic the Government issued data that comes out 2 days later. Thursday has the potential to be the most important day of the week as the ECB Interest Rate is announced and a Press Conference takes place. The rate is expected to drop from 0.25% to 0.10% and if this comes true, President Mario Draghi will probably explain the reasons of the rate cut during the Press Conference. Both the rate announcement and the Conference will most likely generate huge volatility and caution is highly recommended.
The final high-impact indicator of the week comes out Friday in the form of the US Non Farm Employment Change (also known as Non Farm Payrolls). This is the most important employment data released by the United States and almost always its impact is very strong. Better numbers suggest economic expansion and a future increase in consumer spending, leading to a stronger US Dollar.
GBP/USDThe greenback showed increased strength against the Pound last week, managing to take the pair lower and to break the long term uptrend line drawn from last November.
Technical OutlookThe break of the trend line we just mentioned signifies a major victory for the bears and prepares the stage for a full scale reversal of the bullish trend. However, price returned to re-test the level of 1.6750 and we must wait to see if it bounces lower or breaks through to the upside. Price behavior in close vicinity to 1.6750 will influence the next direction but the crucial fundamental events scheduled this week will determine medium term trend.
Fundamental OutlookThe United Kingdom releases the Manufacturing, Construction and Services PMIs during the first three days of the week respectively and Thursday the Bank of England will announce the Interest Rate decision. A rate change is not forecast but there has been a lot of speculation about an increase in the near future so any hints coming from the BoE about such increase will send the pair north on the back of Pound strength. Special attention must be paid to the US Non Farm Employment report as it will highly influence the pair�s direction.
