In the previous AUD/USD weekly forecast, we noted a significantly bearish week. We mentioned previously that the long term bearish channel remained valid. The currency pair breached 0.64 and 0.62 and that intensity suggested a strong bearish undertone. If the AUD/USD remained below 0.62, traders might shift sentiments as times passes, resulting in increased bearish pressure.
In the previous EUR/USD weekly forecast, we saw a return of bearish price action. The EUR/USD eased back above 1.11 but if bearish momentum continued, 1.10 would likely function as support.
Looking at the AUD/USD weekly chart above, we see a massive dip across many strong sentiment and technical regions. This is indicative of a massive influx of bearish sentiment.
The Price Action Bias Signals of AUD/USD for the week was bearish and a number of members wrote to express their joy from their successful trades. The highest is a profit of 204 pips! We are humbled by the messages and would like to take this opportunity to remind again that forex is never 100% predictable. Always practice proper money management and seek to trade forex based on the understanding of the market. Once again, congratulations!
The AUD/USD has retraced back to 0.58 for now and if bearish momentum continues, we may see an attempt to recover the lost grounds. The strong sentiment and technical regions of 0.58 and 0.56 will likely function as supports.
A bullish recovery will probably see the currency pair face resistance at the strong sentiment and technical region of 0.6.
Looking at the EUR/USD weekly chart above, we see a similar intense bearish momentum that drove the currency pair below the strong sentiment and technical region of 1.1 and 1.08. The EUR/USD failed to test the support of 1.06 and has since eased into a position just below 1.07. This shift in value has placed the currency pair back within the long term bearish channel.
In the upcoming week, a continuation of the bearish momentum will likely see a test on the strong sentiment and technical region of 1.06, followed by 1.05.
In the event of a bullish recovery, the strong sentiment and technical region of 1.08 will likely function as a resistance. The lower bollinger band is also in the vicinity and may add it’s influence to the price action.
COVID-19 Coronavirus Crisis
The COVID-19 coronavirus continues to spread globally. It is now present in many countries.
Italy has more than 45000 confirmed cases and over 4000 deaths. Germany, France and Spain have more than 10000 confirmed cases. These figures likely added depressive sentiment towards the euro currency as investors are apprehensive about the containment efforts. With lock down measures of various kinds implemented throughout Europe, analysts are calling out on the resulting adverse economic effect on the Euro Zone.
In the US, there are now more than 15000 confirmed cases. While similar concerns regarding the impact of the crisis will surface, investors are likely viewing this in comparison to the euro zone.
There is significant risk aversion and volatility in the financial markets.
Oil Price Impact
The price of oil dropped further as the significant fall in demand and the oil price war between Saudi Arabia and Russia added negative sentiment.
Looking at the Brent Oil and AUD/USD chart above, we can see the continued detrimental impact on the Australian dollar. As a commodities based economy, the performance of oil will often influence the Australian economy and by extension the Australian currency. The outlook remains volatile as demand is largely determined by industrial production. Oil has dropped to below $30 and the AUD/USD is below $0.60.
The European Central Bank announced a 750 billion euro program to purchase assets and both public and private securities are included. This is done to provide support to the euro economy as the coronavirus crisis continues to escalate. The Pandemic Emergency Purchase Program will run until the end of the year.
While the announcement had a positive impact on the reduction of borrowing costs, the increased liquidity and supply of the euro currency probably added bearish pressure for it.
Sentiment Pushes Economic Data Aside
As risk aversion remains elevated, investors are paying less attention to the economic releases. A better than expected Australian employment situation did little to provide relief to the Australian dollar. On the other hand, worse than expected US Retail Sales and US Unemployment Claims bounced off the against the surge of demand for the US dollar.
In our Major Currency Pairs, US Dollar Index, Brent Oil and Gold analysis, there is a USD focused color coding analysis for the easy identification of sentiment. The current US dollar surge can be clearly seen for sometime now. Members can log in for the latest analysis.
Sentiment can change in an instance making forex trading challenging. It would be prudent to drop down to shorter time frames to assess the immediate price action as part of your forex planning.
The Week Ahead
We need to monitor the COVID-19 coronavirus crisis closely. If the condition deteriorates, we may see increased demand for the US dollar as risk aversion swamps the financial markets.
There are also many important economic releases and events due next week. Any results that may lend weight to the current apprehension may further add to the sentiment, increasing the intensity of it. You can find a number of them listed below. ( Not in chronological order )
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
USA Flash Manufacturing PMI
USA 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.
USA Richmond 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.
EUR German Final 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.
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 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 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 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.
The Bottom Line
Following an economic calendar is vital so that your forex trading plan factors in the events. Members can log in to their dashboard for an economic calendar, the latest Major Currency Pairs, USD Index, Gold, Brent Oil and Price Action Bias Signals analysis.
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It is critical to conduct defensive forex trading ( proper money management, realistic stop loss and take profits, etc ) as sentiments may change in an instant from unexpected developments, resulting in a corresponding price action shift.
Traders should always practice proper money management and seek to understand the underlying tones for the market. May the pips be with you!