This week, the U.S. Dollar is projected to be highly volatile, taking into account the release of the retail sales and Janet Yellen's first testimony as the Chairman of the Federal Reserve. Even though, the greenback lost 0.47% during the last five trading days, there are several arguments that are speaking in favour of the buck's appreciation this week. First of all, Dukascopy traders are buying the U.S. currency in 55% of all cases across the board, while sentiment for EUR/USD, GBP/USD is bearish, whereas vast majority of opened positions on USD/JPY and USD/CHF are long, meaning traders are investing in the greenback. During the last couple of weeks, we have received a bunch of disappointing statistics from the U.S.; however, the weakening of the world's largest economy is likely to be short-lived due to bad weather conditions and usually weak data at the beginning of a year. At the same time, Janet Yellen, who is known for her dovish views is expected to support further tapering, citing gradual pickups in the labour market and inflation, while housing market was on the mend during the last couple of months already.
From the perspective of technical analysis, the EUR/USD pair was trading in boundaries of an ascending triangle pattern since 2011; however, the price is moving to the apex of the pattern, and the trading range is narrowing rapidly. According to statistics, breakout is upward in 70% of cases, while a drop in trading volume is supporting the case of the upcoming breakout.
Another pair that is worth paying attention this week, is the cable, as the pair is still trading in boundaries of a channel down pattern, right at the middle of a trading range at 1.6342. Together with important economic releases from the U.S., the BoE inflation report will shake markets as well, as Carney is forecasted to adjust his widely-discussed forward guidance. Keeping in mind possible U.S. Dollar's strengthening and Carney's potential comments to leave rates unchanged in the foreseeable future, the pair can drop to a weekly S1 at 1.6280, while the next key support can be found at a strong psychological level at 1.6200. At the same time, 59% of all pending orders are placed to sell the pair, meaning in case of further depreciation traders will be ready to provide additional support for a downside movement.