Forex Technical Analysis: Last week, optimistic remarks made by Fed Chairman Ben Bernanke substantially strengthened the US Dollar; the result was a 300 pip drop for the EUR/USD pair and a break of important support levels.
Lasts week’s events are likely to influence this week’s price action as the momentum generated is huge. Price reacted to the level of 1.3200 and stalled for a while once it touched it but Friday the sellers managed to break it decisively. At the moment price is sitting close to 1.3120 and a break during the week is probable, considering the latest strength exhibited by the US Dollar. If this will be the case, the next target for our pair may be the important support level located at 1.2950. The previous support at 1.3200 will probably act as resistance if price starts to retrace higher. The most important resistance level for the latest price action is 1.3400.
The German IFO Business Climate survey (based on the opinions of about 7,000 businesses) will be Monday’s only important event. This is a highly respected survey, mainly due to its large sample size and the fact that Germany’s economy highly influences the Euro.
Tuesday the focus shifts towards the United States for the release of the Durable Goods Orders (goods with a live expectancy of more than 3 years). Better than expected numbers will probably strengthen the greenback because they are indicative of a thriving economy (usually consumers don’t invest large sums of money in durable goods when the economic conditions are bad). The US Consumer Confidence indicator comes out later the same day and will probably show a correlation with the Durable Goods orders.
Thursday morning the German Unemployment Change will affect the Euro and later the US Pending Home Sales numbers will offer insights about the American housing market. The week’s final trading day will be influenced by the release of the German Retail Sales and Preliminary Consumer Price Index. The CPI is the main gauge for measuring inflation and a high value for this indicator may lead in the future to an interest rate increase.
The pair moved substantially lower last week and managed to break both important support levels located at 1.5600 and 1.5490 on the back of a strong US Dollar.
The bearish momentum is likely to continue and the pair may break the current level of 1.5413. This will probably bring in more sellers and price may travel lower, a fact which would transform the latest corrective down move into a trend reversal. The first important support is located at 1.5220 while the first major resistance is represented by 1.5600 followed by 1.5720.
The first important UK event is the Inflation Report Hearings scheduled for Tuesday. Bank of England’s Governor and several other members of the MPC will testify before the Parliament regarding economic outlook and inflation.
Wednesday the Bank of England will release the Financial Stability Report which will contain an analysis regarding their current financial system and an assessment of the measures needed in order to ensure stability. Thursday UK will announce the Current Account value which is the difference between imported and exported goods and services. As always, the US events we mentioned earlier will have a direct impact on the pair.
Written by: Bogdan Giulvezan
The article above is based on the writer’s 4-year experience and it does not constitute trading advice or investment recommendations, just a personal opinion and view of the market.