In the previous AUD/USD weekly forecast, we noted another failed attempt at 0.7 resulting in a bearish week. This was not unexpected as we had cautioned last week that additional validation would be required before an end to the bearish momentum could be assumed. Should the bearish recovery continue, 0.68 could function as a support region and beyond which, 0.67 and 0.66.
In the previous EUR/USD weekly forecast, we noted a failed attempt on the significant sentiment and technical region of 1.14. The week was bearish and a continuation of the bearish recovery could see 1.12 function as the immediate support, followed by 1.11 and 1.10.
Looking at the AUD/USD weekly chart above, we see a doji candle pattern for the week. This suggests apprehension and a lack of direction as the price action ended the week around the opening level.
A continuation of volatility in the week ahead may see pip ranges of around 200 pips or more. If this happens, we may see resistance to bullish price action at 0.69, 0.7 and the upper bollinger band while a bearish momentum will likely see support at 0.68, 0.67 and 0.66.
Looking at the EUR/USD weekly chart above, we observe a bearish week that managed to breach the significant sentiment and technical region of 1.12. In the week ahead, we need to monitor the price action closely as a failure to progress above 1.12 may lead to a decline back towards 1.1 and below.
A bullish recovery in the upcoming week will see 1.12 followed by the upper bollinger band function as resistance. 1.14 may be the ultimate goal but this week’s failure to reach it suggests that downside pressure may be significant.
If the bearish momentum continues, we will likely see 1.11 followed by 1.1 function as support. The middle bollinger band lies in the vicinity of 1.1 and it may lend it’s influence as a support to the 1.1 region.
Risk Aversion Continues
Financial assets under our analysis continue to suggest significant risk aversion. Gold continues to climb and is now above $1740. In our premium analysis of major currency pairs and financial assets, our indicators continue to suggest a general flow of funds towards traditional “safe haven” assets such as the Japenese yen and 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.
The pattern of a second wave of COVID-19 infection for countries such as China and US that have eased restrictions continue to inject apprehension and aversion upon the financial market. 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, especially when the indications remain clear that any attempt to normalize the economy will be greeted with challenges.
Besides the pandemic, we are seeing increased tension between North and South Korea, China and India. These potential risks of conflict will likely increase risk aversion as investors are sensitive to geo political developments due to the potential of significant impact on the countries’ economy and currency.
US Federal Reserve And The US Dollar
The US Federal Reserve continues to provide a huge support of accomodative measures to cushion the economic impact due to COVID-19. If historical trends are of any indication, the previous period of such quantitative easing measures after the 2008 financial crisis resulted in the drop of value of the US dollar for an extended period of time. Chairman Powell had indicated that the current supportive measures are to be expected through 2022 and he commented that “We’re not even thinking about thinking about raising rates.”
Setting aside US dollar strength derived from other factors such as sentiment, the law of supply dictates that an increased supply of the US dollar will result in downside pressure in value. This is an economic theme that we need to keep in mind when formulating our forex trading plans.
Continue To Monitor The Entirety Of The Market
As mentioned last week, forex trading remains challenging due to the volatility induced by shifting sentiments. We need to continue to approach 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 remains vital 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 )
AUS RBA Gov Lowe 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.
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
USD 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.
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 Final 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 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 Bank Stress Test Results
Economic stress tests are done to simulate challenging economic climates so as to ascertain risks such as sufficiency of liquidity or capability to continue operations. Positive or negative results, especially if unexpected, may affect sentiment and result in increased volatility.
USA Core PCE Price Index
The Personal Consumption Expenditures index is similar to the Consumer Price Index but it focuses on individuals. It is a component of inflation and if inflation is high, a central bank may increase interest rate to mitigate the situation.
USA Personal Spending
While Personal Spending is similar to Retail Sales, it focuses on consumers. It is a fundamental component of the economy because as consumers spend, it translates to revenue and flows up stream as salaries, wholesales purchase, production orders and so on.
USA Revised 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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