Key Points:
- Price action likely to continue moving towards the 1.3184 target.
- Watch for volatility around the Fed’s rate decision.
- A short period of moderation possible given RSI levels.
The Cable had a relatively positive week despite the fact that the UK Advance GDP figures slipped to 0.3% q/q. However, this was offset by a softer USD following the uptick in Unemployment Claims to 257k whilst the Core Durable Goods Orders fell into contraction at -0.2% m/m. Subsequently, the pair rose throughout most of last week to close at 1.2944 but it remains to be seen if the pair can retain its bullishness over the next few days. Subsequently, we review the salient events from last week and discuss some of the potential risks in the days ahead.
Last week proved relatively positive for the Cable despite the disappointing UK Advance GDP figures, which came in well below estimates at 0.3% q/q. This initially caused a small selloff but the pair quickly rebounded when the US Unemployment Claims surprisingly ticked higher to 257k whilst the Core Durable Goods Orders took a hit at -0.2% m/m. Subsequently, the Cable was fairly buoyant and rose to a high of 1.2964 before pulling back to close the week out at 1.2944.
Looking ahead, it’s going to be an incredibly volatile week for the Cable with the UK Manufacturing, Construction, and Services PMI figures all due out over the next few days. Most of the market estimates provide for a relatively robust set of results and this is likely to provide some further follow through for the recent bullishness. However, watch out for plenty of volatility inducing events on the U.S. side of the fence with a critical Federal Reserve vote on rates, along with the NFP figures, due out. In particular, the FOMC vote is likely to be closely monitored and, although the central bank is unlikely to raise rates, could bring about plenty of volatility in the aftermath. In fact, Fed Chair Yellen’s statement following the event is seen to be critical for the markets forward guidance.
From the technical perspective, the Cables recent rally suggests that the ongoing move back towards the medium term target at 1.3184 is still in play. However, the RSI Oscillator is now close to overbought levels and we could be facing a short term period of moderation. Regardless, price action still retains its position well above the 100 day MA which is why out initial bias remains bullish for the week ahead. Support is currently in place for the pair at 1.2754, 1.2625, and 1.2547. Resistance exists on the upside at 1.2965, 1.3121, and 1.3335.
Ultimately, the Cable is likely to retain its bullish disposition for the remainder of the week as long as it can hold above the key 1.2878 mark. However, it’s highly likely that it will suffer from some sharp volatility with both the Fed’s FOMC decision and the NFP results and this could cause a temporary cessation to the rally. Subsequently, consider your positioning ahead of these risk events but expect the pair to return to an upward trajectory in short order following any swings.
