Alpesh Patel's NEWSLETTERPRO – Major currency pairs testing important support levels, what to expect on an event-heavy week ahead

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MORNING BRIEF

The previous week was a busy one for the currency market as we witnessed significant developments across all major pairs. The theme was an extended pro-Dollar rally across the board as the US currency gained a lot against its peers. The Euro dropped from 1.3820 to 1.3480 within one week which is the largest weekly loss for the Single European currency since 2012 while the British Pound also fell from 1.6200 to 1.5900. The sell-off in the Euro was attributed to less dovish comments coming from the FOMC statement as the Fed appeared to be less pessimistic over the prospects of the US economy in comparison to what the market was expecting. Moreover, comments from European policymakers hinting to a possibility of another LTRO round next year led the Euro lower. This week we will have the chance however to listen to the ECB President himself as ECB Rate Decision is scheduled for Thursday. Should Mario Draghi appear concerned and hint to lowering rates then the Euro will take another dive taking the currency below 1.3400 but if the ECB President shrugs off previous negative comments made from his colleagues then the Euro will recover radically. The Non-Farm Payrolls report is also scheduled for Friday but market participants are already braced for a low printing as the US shutdown will have unavoidably taken its toll on the job market. The Pound is also at risk this week as key sectors’ reports are expected and we believe that the recent deterioration in figures could continue leading the British currency even lower. The Pound had a upwards rally during previous months but it is now apparent that momentum has shifted and investors are positioning for a weaker Pound in the coming period.

Significant reports from the European region expected this morning

The week starts with a number of PMI reports from the European region. Early this morning the German and European Purchasing Manager Indices are scheduled for release and we could see momentum building up if these figures come higher or lower than expected. Around the same time, the British PMI is also scheduled for release and we are very interested to see how production figures from the UK come in and whether fears for a slowdown in production are justified or not. Finally, later in the day the US Factory Orders are also expected and this could be an important indication on how the heavy industry sector is performing in the US.

Economic Calendar

Time

Currency

Event

Importance

Forecast

Previous

08.55

EUR

German PMI

Medium

51.5

51.5

09.00

EUR

Euro-zone PMI

Medium

51.3

51.3

09.30

GBP

British PMI

Medium

58.7

58.9

15.00

USD

Factory Orders (SEP)

Medium

1.8%

 

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TECHNICAL ANALYSIS & LEVELS

EUR/USD

Euro fell even more on Friday concluding a nightmarish week for the European currency. At this point the pair is heavily oversold and a prediction on what to expect is difficult. We believe that the Euro needs to retrace higher as the recent drop was heavily overextended but a specific trade cannot be suggested as we need to see how high will this possible retracement go. We believe that the key level at this time is the 1.3600 and a possible relief rally towards this figure is possible thus we will need to wait and see how the Single currency starts the week. We had a nice income of profits last week from this pair and we wouldn’t want to risk them simply to engage into a risky trade. Patience is advised as we assess the pair’s prospects before we jump into a trade again.

GBP/USD

The Pound also fell on Friday and our second target at 1.5900 was hit just a couple of hours earlier as the Asian session kicked off the week ahead. For those of you that didn’t have the chance to close out the trade due to the early time please move your stops to the 1.5940 level as a retracement higher could manifest. For the day ahead, same as the Euro the Pound had an overextended rally downwards and since our second target was just hit we would want to stand aside and see whether the Pound makes an effort to reach higher on a retracement. The 1.6000 level is key and we’re very keen to see whether the Pound will try to climb back above it. We’re not very optimistic however on this happening and we think that the pair’s medium-term prospects have turned negative and a breach below the 1.5900 level will lead the Pound even lower.

FTSE 100

The FTSE 100 moved in a sideways pattern on Friday and seems to be ready to try and reach for higher levels once again. We favor a long trade just above the 6,760 points with targets placed at the 6,785 and 6,830 points levels and a stop below the 6,710 mark. The UK index has retraced from previous highs, formed a reversal pattern near the support level of the 6,700 points and should this pattern be broken upwards we would like to jump into the trade we mentioned above.

Gold

Gold fell on Friday and reached our first target at the $1,310 mark. We have moved our stops at the breakeven level which is the entry price of our trade and we are now targeting even lower at the $1,278 price tag. This trade might take a bit longer to evolve but we will see how the yellow metal starts its week and we could possibly suggest one more trade, more focused on the short-term.

All charts have been created using FXCM’s Trading Station platform.

This is the free, time-delayed version of NewsletterPro, a subscription-based product.

If you would like to receive it before 7:30am, please subscribe by clicking here.

 

 

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