Key Points:
- Price action takes a largely sideways direction.
- U.S. GDP results loom and could fundamentally impact the pair.
- Watch for a break out from the consolidation pattern in the coming week.
The Euro remained relatively flat over the course of the week retaining its position within the consolidative structure to close around the 1.1191 mark. There was little on the fundamental front to change the volatility outlook but a slight sentiment swing against the greenback was evident with most of the U.S. economic data proving fractionally disappointing. Therefore, it remains to be seen if the Euro will continue to trend within the current consolidation pattern but let’s review last week’s major points with the intent of highlighting some looming risks.
The Euro entered the week with plenty of speculation that we might see an end to the low volatility period that has plagued the pair of late. However, that wasn’t to be and the pair continued to trend within the consolidative structure in a largely sideways pattern. Subsequently, the pair closed the week out largely where it started at 1.1191. However, we did see some signs of bullishness late in the week when the U.S. Manufacturing and Services PMI figures were released and showed declines to 52.1, and 53.0, respectively. This sent the Euro rising by around 40 pips but it soon ran out of lift and the move abated.
Looking ahead, the coming week has plenty of fundamental events looming that could cause volatility to return to the pair. In particular, the U.S. GDP figures are likely to be closely watched by the market given that there is some concern as to the current negative trend within the domestic economy. Subsequently, this result will need to be relatively robust to support the Fed’s current narrative around rate hikes. In addition, ECB Chair Mario Draghi is due to speak in the middle of the week and is likely to provide some illuminating comments on the current state of the Eurozone. This will be particularly interesting given that the central bank just cut the inflationary outlook for the coming few years. Ultimately, either of these statements might be enough to cause some volatility, and a breakout, for the Euro Dollar so monitor them carefully.
From a technical perspective, the Euro Dollar has stayed in consolidation below 1.1295 which suggests that our bias of neutral from last week remains in play. In addition, support at 1.1109 remains intact which suggests that a reversal is not yet on the cards. Ultimately, the pair will need to break out of the current structure, and develop a strong trend, before a directional bias can be highlighted. Support is currently in place for the pair at 1.1163, 1.1109, and 1.0954. Resistance exists on the upside at 1.1281, 1.1343, and 1.1425.
Ultimately, the Euro is likely to take a largely sideways direction in the week ahead until price action breaks out of the current consolidation phase. However, keep a close watch on the U.S. GDP figures as a strong result could see the 1.1109 support coming into focus.
