In the previous AUD/USD weekly forecast, we observed a bullish week for the currency pair. We were pleased with the performance of our bollinger bands which had functioned as a cap of sorts on the bullish momentum. Should the bullish price action continued, we could likely see resistance at the middle bollinger band and the strong sentiment and technical region of 0.66.
In the previous EUR/USD weekly forecast, we noted a bullish week for the currency pair. While the bullish momentum was significant, we observed resistance at the middle bollinger band and the strong sentiment and technical region of 1.1. If the long term bearish trend line exerted it’s influence in the coming week, we would see an unwinding of the EUR/USD’s bullish gains. The currency pair would likely encounter support at 1.09 / 1.08.
Looking at the AUD/USD weekly chart above, we note a bullish week for the currency pair. As per our previous forecast, the middle bollinger band was spot on, serving as a resistance for the bullish push. Over the decade of our forex analysis, our bollinger bands have often shown to be worthy analytical assets time and again. They are a fundamental component of our forex analysis.
The week ahead is crucial as we seek to ascertain if the bullish momentum is to continue. Considering that both the middle bollinger band and the strong sentiment and technical region of 0.66 is in the vicinity, we may encounter significant down side pressure. Beyond that, lies the long term bearish trend line which is likely to also function as a resistance region.
A start of bearish recovery on the other hand will need to face possible support at 0.65 and the strong sentiment and technical region of 0.64.
Looking at the EUR/USD weekly chart above, we observe a bearish week for the currency pair. As per our previous forecast, the return of bearish pressure resulted in the unwinding of the currency pair. This was likely the scenario which we cautioned about last week regarding the long term bearish trend line exerting it’s influence. A number of readers wrote in to share their joy of a successful trade and we are pleased to hear that. Gentle reminder that nothing in forex is ever 100% predictable and hence do trade safe!
Should the bearish momentum continue in the week ahead, the price action faces likely support at the strong sentiment and technical region of 1.08. If the currency pair breaks through successfully, the lower bollinger band will probably function as a support too.
A return of bullish momentum will likely face resistance at the region of the bearish trend line, middle bollinger band and 1.1.
Australian Dollar Continues Climb
The Australian Dollar continues to thrive as several positive economic factors add upside pressure. The COVID-19 situation continues to improve for Australian and China, leading to further easing of economic restrictions. The price of oil has also increased from it’s record low, adding bullish inclination to the commodities based economy of Australia. The Reserve Bank of Australia did not make changes to the interest rate and remained cautious but optimistic in the economic outlook. Investors usually reward a currency for any positive economic outlook of the home country, leading to bullish pressure.
Regardless, we still remain cautious about any expectation as the economic situation is still fluid. Any surprise deterioration will possibility trigger volatility and downside risk. An important point to note is that the currency pair is approaching a long term bearish trend line and it remains to be seen what interaction outcome awaits. Furthermore with Australia’s push for an investigation into China’s actions in the COVID-19 pandemic and the increasing tension between the US and China, there is growing apprehension of a diplomacy crisis affecting economic potential.
US Unemployment Situation
The US Non-Farm Payroll came out to be better than expected. This was accompanied by a US Unemployment Rate of 14.7% instead of the expected 16%. This likely resulted in an increase of risk appetite as the US dollar weaken against most currencies. This is clearly seen in our US Non-Farm Payroll Analysis and members should log in for the latest update. It remains crucial for us to monitor the US employment climate as the impact from the COVID-19 pandemic continues to manifest in the economic figures.
Euro Zone Woes
The euro currency continued to be weighed down ever since the German Constitutional Court ruled that the quantitative easing measures taken by the European Central Bank to support the troubled Euro Zone economy is a partial violation of the German constitution. Considering that Germany is a major economy in the euro zone, apprehension towards a possible Bundesbank withdrawal from the existing monetary easing measures continues to take it’s toll on the euro currency.
The European Commission forecasted that an Euro Zone economy plagued with the COVID-19 crisis, surging public debt and budget deficit will result in a -7.7% contraction this year. Risk aversion likely increased due to the dire nature of the statement.
The Week Ahead
There are a number of important economic releases and events for the week. Any development that may lend weight to the current apprehension may further add to the sentiment and increase the intensity of it. You can find a number of them listed below. ( Not in chronological order )
AUS NAB Business Confidence
Business Climate surveys are influential as the sentiment of businesses is a leading indicator of economic health. A healthy sentiment suggests that an economy is moving along well while a cautious sentiment may see less business activities due to prudence.
USA Core CPI
Consumer Price Index is important because the price of consumer goods is a significant component of inflation. If inflation is high, a central bank may increase interest rate to mitigate the situation. Speculations of a possible interest rate hike may generate demand for the currency.
AUS Wage Price Index
Business spending on labor serves as a leading indicator of consumer inflation. This is because if the labor costs are high, the price of the goods will likely increase. If inflation is high, a central bank may increase the interest rate to mitigate the situation. Speculations of a possible interest rate hike may also generate demand for the currency.
USA Core PPI
Producer Price Index is important because the price of goods sold by producers influences the downstream impact of inflation. If inflation is high, a central bank may increase interest rate to mitigate the situation. Speculations of a possible interest rate hike may also generate demand for the currency.
USA Fed Chair Powell Speech
Speeches may reveal new insights to economic policies or contain a question and answer segment that at times go into unscripted topics resulting in unexpected developments and volatility.
AUS Employment Change
AUS Unemployment Rate
USA Unemployment Claims
Employment is a fundamental component of the economy as it leads to consumer spending and hence retail sales. A low unemployment rate is an indicator of a healthy functioning economy.
EUR German Prelim GDP
Gross domestic product is a measure of the monetary market value of all the goods and services produced. It is an overall measure of economic activity and health and thus wields influence on the home currency.
USA Core Retail Sales
USA Retail Sales
Retail sales is a fundamental component of the economy. As consumers spend, it translates to revenue and flows upstream as salaries, wholesales purchase, production orders and so on.
USA Prelim UoM Consumer Sentiment
Consumer surveys are influential as the sentiment of consumers is a leading indicator of economic health. A healthy sentiment suggests that an economy is moving along well and hence consumers are confident. This likely leads to increased retail sales. A cautious sentiment on the other hand may see consumers spend less in view of a perceived upcoming economic crisis.
The Bottom Line
It is important to follow an economic calendar as your forex trading plans may be affected due to shifting sentiments. Members do log in to your dashboard for the economic calendar. You should also review the latest Major Currency Pairs, USD Index, Gold and Brent Oil analysis to complement your forex trading plan.
It is important to conduct defensive forex trading ( proper money management, realistic stop loss and take profits, etc ) as sentiments may shift in an instant from unexpected developments, resulting in a corresponding shift in price action.
Traders should always practice proper money management and seek to understand the underlying tones for the market. May the pips be with you!
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