In the previous AUD/USD weekly forecast, we noted a bullish climb beyond 0.68 that resulted in a failed attempt on the major sentiment and technical region of 0.7. While this might be a possible end to the bearish trend, further validation would be required.
In the previous EUR/USD weekly forecast, we observed a similar climb towards the extended bullish target of 1.14. However the currency pair failed to achieve a foothold and had since eased below 1.13. In similar fashion, the currency pair’s current position was above the long term bearish trend line. While this might be a possible end to the bearish trend, in view of the recent sentimental nature of the price action, further confirmation would be required to rule out such sentimental price action.
Looking at the AUD/USD weekly chart above, we observe another failed attempt at 0.7 and the week ended bearish. This is not unexpected as we had cautioned last week that additional validation will be required before an end to the bearish momentum can be assumed. As circled above, 0.7 is a significant area of sentiment and technical influence which will likely yield considerable support and resistance potential.
In the event of a continuation of the bearish recovery, 0.68 will likely function as a support region and beyond which, 0.67 and 0.66.
On the other hand, a return of bullish momentum will probably setup a new attempt on 0.7. The synergy between the 0.7 region and the upper bollinger band may result in a significant area of resistance.
Looking at the EUR/USD weekly chart above, we see a failed attempt on the significant sentiment and technical region of 1.14. With reference to the circled region on the chart, we can see that this region yields significant support and resistance potential.
A number of readers have written to us about their long positions being taken out. These positions were taken to take advantage of the “end” of the long term bearish trend. This is most unfortunate because in our previous weekly forecast, we mentioned that further validation is required before we can assume that the long term bearish trend has ended. If you have been following our forecasts for some time now, you will be mindful that our approach to forex trading and analysis is holistic. Understanding the market undertones is crucial for forex success. The recent price action has been rather sentimental in nature due to the geopolitical events of the COVID-19 pandemic and this may result in a quick reversal of momentum as seen this week.
A continuation of the bearish recovery will likely see 1.12 function as the immediate support, followed by 1.11 and 1.10.
If the bullish momentum returns, the upper bollinger band may function as the immediate resistance, followed by the strong sentiment and technical region of 1.14.
Fickle Risk Appetite
Financial assets under our analysis made a dramatic reversal in risk sentiment. Crude Oil and the S&P 500 has weaken while Gold is back above $1700. In our premium analysis of major currency pairs, we see a full reversal of our indicators which were likely a result of the flow of funds towards traditional “safe haven” assets such as gold. This is an important sentiment to be monitored and members should log in to their dashboard for the latest update and factor it in their forex trading plans.
As the apprehension towards a second wave of COVID-19 infection increases, the sentiment is increasingly weighting down on the financial market. China has just reported that parts of Beijing are now in lockdown due to the emergence of a new COVID-19 cluster of 57 cases. We need to understand that the recent hawkish sentiment of the financial market are mostly build on the optimism towards an economic reopening. Such new adverse developments will affect sentiment.
US Federal Reserve In For The Long Run
The US Federal Reserve Chairman Powell had indicated that the current accommodative measures are to be expected through 2022. The expectation of a 0-0.25% interest rate for this period of time will leave investors of the US dollar with one less reason of confidence. His comment that “We’re not even thinking about thinking about raising rates.” is very indicative of his stance. Having said so, while investors usually favor a currency with a higher interest rate, we need to also factor in other aspects such as risk aversion. The US dollar may still gain in strength due to reasons as such a flow of funds to safe haven and this reminds us once again that forex trading is holistic. Price action in the shorter time frames are usually sentimental in nature while fundamental factors such as interest rates usually unfold over a longer period of time.
Continue To Monitor The Entirety Of The Market
Recent times remain a challenge for forex trading as extreme sentiments inflict volatility. We need to continue to formulate our forex trading plans based on a holistic understanding of the market. Monitoring correlations across various financial assets for indication of risk appetite and outlook is ever more important to differentiate your forex trading from mere bets of chance. Using tools such as our Majors, US Dollar Index, Brent Oil and Gold Analysis for members will complement your understanding of the market undertones.
The Week Ahead
There are a number of important economic releases and events for the week. It is important to monitor the sentiment so as to understand the economic undertones. 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 )
AUD Monetary Policy Meeting Minutes
Monetary policy meeting minutes are given much attention by analysts and investors as it has an impact on the economy. The minutes will be analysed thoroughly for insights on the economic policy ahead. Significant volatility may be generated if there are unexpected revelations.
USA Core Retail Sales
USA Retail Sales
AUS 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 Fed Chair Powell Testimony
Testimonials may reveal new insights to economic policies or the question and answer segment may go into unexpected topics resulting in unexpected developments and volatility.
USA Building Permits
The construction of a building generates many economic activities. Jobs will be created for construction workers, the various sub contractors and services associated with new buildings such as power, water, furniture and so on.
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.
USA Philly Fed Manufacturing Index
This survey of manufacturers is important as the sentiment of businesses is a leading indicator of economic health. A healthy sentiment suggests that an economy is moving along well and with the activities of the businesses, downstream benefits will happen such as employment and investment.
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.
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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