EURUSD and GBPUSD testing last week’s highs

EURUSD chart analysis

During the Asian session, the euro withdrew against the dollar. The ECB kept its monetary policy stance unchanged last week, as expected. However, President Christine Lagarde refrained from explicitly ruling out the possibility of raising interest rates this year. That “silence” provided a speculative boost to the euro. On the other hand, the US currency has been consolidating since Friday after regular monthly (NFP) data from the US labor market came as a positive surprise. Namely, the number of newly created jobs increased by 467,000 in January (expectations stood at around 150,000), but the unemployment rate rose to 4% from 3.9%. The euro is now trading at $ 1.14222, weakening the common European currency by 0.23% since trading closed on Friday.

Bullish scenario:

• We need a new positive consolidation and a new test of last week’s high at 1.14835.
• Twice this year, we have tried to make a break above 1.14850 but without success so far, and we hope the pair will succeed in the third attempt.
• We have a solid resistance zone in the range of 1.14850-1.15250, and here the EURUSD pair will be more vulnerable.
• Break above will quickly push us up to 1.16000, and maybe even to 1.17000 high from October.

Bearish scenario:

• We need a continuation of the current negative consolidation and a retreat towards 1.14000.
• Potential additional support for this level is the MA20 moving average, while the MA200 is in the zone around 1.13500, and the MA50 is at 1.13000.
• A break below 1.14000 could drop us to 1.13000, the place where the last climb began after the ECB meeting last Thursday.
• Our maximum pullback is up to 1.12000 and this year’s minimum zone.

GBPUSD chart analysis

During the Asian session, the British pound consolidated after a significant withdrawal against the dollar on Friday. The Bank of England raised the interest rate on the island to 0.5% but sent a very cautious forecast on the prospects of the British economy. This gave the pound short-lived strength. However, other post-Brexit problems and political disagreements on the island continued to put pressure on the island’s currency. Now, the pound is trading for $ 1.3500, which is weakening the British currency by 0.19% since the close of trading on Friday.

Bullish scenario:

• Friday was very bearish for the pound, and Monday continued where we left off last week.
• We need a new positive consolidation that would first climb us above the MA20 moving average.
• After that, we can say that the GBPUSD pair will try again to test last week’s high at 1.36270.
• Moving above 1.36000 would give us the opportunity to try to continue further towards January high at 1.37500.
• An additional resistance at that level is the MA200 moving average.
• Since August last year, GBPUSD has failed to stay above the MA200 moving average.

Bearish scenario:

• We need to continue the current negative consolidation and withdraw to support at 1.34000.
• Additional support at that level is our MA50 moving average.
• The break below opens up empty space to the December support zone around 1.32000.

Market overview

In December, German industrial production dropped unexpectedly due to a sharp decline in construction, Destatis data showed on Monday.

Industrial production fell 0.3 percent on a monthly basis, up from a revised 0.3 percent growth in November. This was the first drop in three months. On an annual basis, industrial production decreased by 4.1 percent. Economists’ forecast was a monthly increase of 0.4 percent.

In 2021 as a whole, production in the manufacturing sector was 3.0 percent higher than in 2020 but 5.5 percent lower than in the pre-crisis 2019.

The small drop in production in December was not as bad as it seems because it was mainly due to the decline in construction activity, but 2021 was still a terrible year for German manufacturers because supply chain problems kept vehicle production at a low level.