In the previous AUD/USD weekly forecast, we observed a return of bullish momentum for the currency pair. The Price Action Bias Signals was spot on, providing a slightly bullish signal.
We plotted a bearish trend line from back in 2018 and noted that the AUD/USD had slipped back under. This suggested possible bearish undertones. If the bearish momentum returned, we would probably see a test on 0.67, the lower bollinger band and the strong sentiment and technical region of 0.66.
In the previous EUR/USD weekly forecast, we observed another bearish week for the currency pair. This was as per the slightly bearish Price Action Bias Signals for the week. Congratulations to our members who had factored that in their trading plan and double congratulations for those who managed to leverage on it for both the EUR/USD and AUD/USD!
The EUR/USD was still within the bearish trendline from 2018 and we had yet to see any established return of bullish momentum. If the bearish momentum continued in the upcoming week, we would likely see the strong sentiment and technical region of 1.08 function as a support.
A bullish recovery would probably see resistance at the lower bollinger band / 1.09 followed by the strong sentiment and technical region of 1.1.
Looking at the AUD/USD weekly chart above, we see a return of the bearish momentum. As per our forecast, the currency pair did face support pressure at the lower bollinger band and the strong sentiment and technical point of 0.66. It failed to overcome the 0.66 region and had since eased back towards the lower bollinger band.
We mentioned often and would like to highlight again that in our decade of forex analysis, we found our setup of bollinger bands to be of great assistance towards our technical research. Sometimes a well chosen simple technical indicator may prove much more insights than a complicated version. Keep it simple!
A continuation of the bearish push will see the currency pair face off with the significant region of 0.66. A clear breach of this support may open up the descent to 0.64.
If a bullish recovery happens, we will probably see some resistance at 0.6670, 0.67 and the strong sentiment and technical region of 0.68.
Looking at the EUR/USD weekly chart above, we observe a failed attempt to breach 1.08. As per our previous forecast, the bearish momentum faced significant support at 1.08 and failed to gain a foothold. The opposing bullish recovery was limited by the lower bollinger band and eased towards the downside. Thumbs up to our bollinger bands which often provide us with invaluable insights. In fact, these bollinger bands are one of the contributing factors to our Price Action Bias Signals.
In the upcoming week, a renewed bearish push will likely face strong support at 1.08. It is vital for the bearish traders to breach and gain a foothold below 1.08 before any further bearish momentum can happen.
A continuation of the bullish recovery will need to punch through the resistance at the lower bollinger band followed by 1.09.
COVID-19 Coronavirus Crisis
The COVID-19 coronavirus continues to spread in China and globally. It is now present in many countries. A new front of concern is happening in South Korea as authorities rush to limit the spread. We continue to observe the influence exerted on the Australian Dollar. China is a major economic partner of Australia and hence the AUD is often influenced by Chinese developments. The situation continues to be volatile and risk aversion remains.
In times of risk aversion, “safe haven” assets will usually be in demand and hence result in a rise in value. In the Gold Price chart above, we see the “timeless” currency rise in value as the months go by. It has now reached a high of $1643. It is important to acknowledge that the price has spiked, suggesting increased risk aversion among investors.
Australian Employment Situation
The Australian unemployment rate reported worse than expected results. Instead of 5.2%, it came out to be 5.3%. The unemployment rate has increased. Employment is a fundamental component of the economy as it leads to consumer spending and hence retail sales. A high unemployment rate is an indicator of an economy facing challenges.
With this increase, a number of analysts are speculating that the recent challenges of the Australian economy may have taken its toil and hence there is an increased possibility of an interest rate cut by the Reserve Bank of Australia. Investors usually prefer a higher interest rate and hence these speculations will probably add to the downside pressure of the Australian Dollar.
German and Euro Zone Manufacturing Provides Relief
Towards the end of the week, both the German and Euro Zone PMIs performed better than expected. The German Flash Manufacturing PMI was reported to be 47.8 instead of 44.8, while the Euro Zone Flash Manufacturing PMI was reported to be 49.1 instead of 47.4.
The 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.
Germany is a major economy of the Euro Zone and hence this development likely increased the positive sentiment towards the Euro currency. The significance of the reports can be seen as the Euro currency surged towards the end of the week.
The Week Ahead
We need to monitor the COVID-19 coronavirus crisis closely. If the condition deteriorates, sentiments may be further affected.
There are also many important economic releases and events due next week. You can find a number of them listed below. ( Not in chronological order )
EURO 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.
USA CB Consumer Confidence
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.
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.
AUS Construction Work Done
USA Pending Home Sales
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.
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.
AUS Private Capital Expenditure
Business spending serves as a leading indicator of economic activity. If spending is high, downstream activities such as employment may rise. On the other hand if spending drops, it will be an indicator of a challenging economic climate.
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 Preliminary 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.
EURO German Prelim 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.
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 Chicago 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.
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, Crude 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!