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EUR/USD AUD/USD Weekly Forecast 21 Oct 19

In the previous weekly forecast, we noted a bullish week for the AUD/USD. The significance of the 0.68 region continued to exert it’s influence on the price action. If the bullish momentum were to continue, a clear break above 0.68 would likely see the middle bollinger band tested next.

Economic data from Australia continued to suggest downside risk. The Westpac Consumer Sentiment came in at a 4 year low of -5.5%.

The EUR/USD was bullish too and it managed to close the week above the strong sentiment and technical region of 1.1. A continuation of the bullish momentum would see the EUR/USD test 1.11 followed by the middle bollinger band next.

Economic data from the US came in mixed. Both the Producer and Consumer Price Index came in lower than expected. Having said so, the US Preliminary UoM Consumer Sentiment came out better than expected towards the end of the week.

Hopes of a Brexit deal were risen as the UK PM Boris Johnson was reported to have signaled an U turn on the arrangements for the Irish border. Intense negotiations were stated to follow.

Technical Analysis

Looking at the AUD/USD weekly chart above, we note a bullish week for the currency pair. As expected in the previous forecast, the AUD/USD tested the middle bollinger but failed to gain a foothold. It ended the week right below it. Our bollinger bands continue to meet our expectations and have proven to be viable considerations in our analysis. In fact, it is one of the signals for our Price Action Bias Signals.

If next week brings along more bullish momentum, the middle bollinger band needs to be breached before an attempt can be made on 0.69 and 0.7.

A return of bearish pressure will probably result in a face off with the strong sentiment and technical support of 0.68. Beyond that, 0.67 and the lower bollinger band will likely function as resistance.

Looking at the EUR/USD weekly chart above, we note that the currency pair is bullish too. It went beyond the middle bollinger band and is now in the vicinity of the strong sentiment and technical resistance of 1.12.

In the coming week, if the bullish momentum gathers enough drive to breach the 1.12 resistance, we may see an eventual push for 1.14.

A return of bearish pressure may see the middle bollinger band function as an immediate support. Beyond that, 1.11 and the strong sentiment and technical region of 1.1 are likely to exert supportive influence.

A Taste Of Things To Come

Early in the week, the German ZEW Economic Sentiment came in better than expected at -22.8 instead of -27.

On the other hand, the US Retail Sales was worse than expected. It came in at -0.3% instead of 0.3%. Retail sales is a fundamental component of the economy. As consumers spend, it translates to revenue and flows up stream as salaries, wholesales purchase, production orders and so on. This did not reflect well on the US economy as the data went straight into negative territory. It likely added to the bearish pressure on the US dollar. It was reported that there were increased speculations of further interest rate cuts.

The Reserve Bank of Australia released it’s Monetary Policy Meeting Minutes too and the insights obtained were mostly as expected that the current accommodating monetary policy is likely to remain for some time. In view of this, the release probably did not exert significant influence on the AUD/USD.

Australian Employment Delights

The Australian Unemployment Rate came out better than expected. It fell to 5.2% instead of 5.3% and was the first drop in many months. This likely brought positive relief to the Australian dollar. Coupled with a US dollar under a bearish siege, the AUD/USD reached up to higher levels.

Having said so, this price action may be mostly sentimental in nature as the fundamentals are largely unchanged and hence may change without warning.

US China Trade Dispute

Over the week, reports paint an increasingly positive situation for the US China trade negotiations. This culminated into a deal that provided offered a temporary reprieve from US imposed tariffs planned for mid-October.

However it is important to understand that existing tariffs remain and hence more negotiations lies ahead. China reported that it’s third quarter economic growth was 6% on an annual basis and this is a new low in almost 30 years. The trade dispute pressure on the Chinese economy may be working it’s way through.

Brexit Deal Agreed But . .

European Commission President Jean-Claude Juncker and UK Prime Minister Boris Johnson mentioned that a deal has been reached between the UK and EU officials. Considering that the Brexit situation has been a source of much negative sentiment for the euro currency, this development likely increased positive sentiment for the week.

The situation is probably different by Monday as the UK House of Commons convened on Saturday and rejected the revised deal in a vote. This meant that a delay will be requested by the UK.

As the new week starts, it will be crucial to monitor if sentiments were affected.

The Week Ahead

We are expecting many economic events from the Euro Zone in the week ahead. This includes the European Central Bank interest rate event. Australian and US scheduled economic releases are relatively fewer.

AUS RBA Assist Gov Kent 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.

USA Crude Oil Inventories
Movement of oil supply may bring insights to the level of general economic activities. For example, an increasing supply may suggest excessive production or diminishing demand. A reducing supply on the other hand may suggest an economic pick up.

EUR Spanish Unemployment Rate
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 French Flash Services PMI
EUR French Flash Manufacturing PMI
EUR German Flash Manufacturing PMI
EUR German Flash Services PMI
EUR Flash Manufacturing PMI
EUR Flash Services PMI

Purchasing Managers’ Index is a survey of purchasing managers and is important as the sentiment of purchasing managers 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.

EUR Main Refinancing Rate
A high interest usually generates demand while a low interest may result in the dumping of the currency for better yielding alternatives. Therefore the interest rate result usually has a significant impact, especially when it is an unexpected result.

EUR Monetary Policy Statement
Monetary policy meeting statements 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.

EUR ECB Press Conference
Press conferences may go into unscripted territory during the Question and Answer segment and hence may spur unexpected developments and volatility.

USA Core Durable Goods Orders
USA Durable Goods Orders

Reports on the orders of goods are leading indicators of production and thus the level of economic activities. Increasing purchase orders suggests that manufacturers will increase activity to meet the demand, providing downstream benefits such as employment. On the other hand, decreasing orders may indicate an upcoming economic crunch.

USA Flash Manufacturing PMI
Purchasing Managers’ Index is a survey of purchasing managers and is important as the sentiment of purchasing managers 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.

EUR German Ifo Business Climate
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.

There are many more events and hence it is important to follow an economic calendar. By doing so, you can reduce the possibility of an unexpected development affecting your trading plan.

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Traders should always practice proper money management and seek to understand the underlying tones for the market.

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