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EUR/USD AUD/USD Weekly Forecast 25 May 20

In the previous AUD/USD weekly forecast, we saw a bearish week as mentioned in our forecast the week before. The upcoming week would be crucial as the price took on the strong sentiment and technical region of 0.64. A bullish recovery would likely encounter resistance at the middle bollinger band and 0.66.

In the previous EUR/USD weekly forecast, we noted that the week ended slightly bearish. In the event of a bullish recovery, we might see resistance at 1.09 followed by the middle bollinger band / bearish trend line. The strong sentiment and technical region of 1.1 would be in the vicinity too and it could synergize with the other resistances.

Technical Analysis

AUD USD weekly chart forex forecast

Looking at the AUD/USD weekly chart above, we observe a bullish week. The price action broke through the middle bollinger band but failed to establish a foothold over the strong sentiment and technical region of 0.66. As per our previous forecast, this is inline with our expectations of a bullish recovery.

In the upcoming week, a continuation of the bullish momentum will need to breach 0.66 decisively for any further upside gain. The upper bearish trend line will likely exert resistance along with 0.67. The strong sentiment and technical region of 0.68 will be the target of any extended push.

A return of bearish pressure will probably face support at the middle bollinger band / 0.65, followed by the strong sentiment and technical of 0.64.

EUR USD weekly chart forex forecast

Looking at the EUR/USD weekly chart above, we observe a bullish week for the currency pair. The price action confronted the middle bollinger band and the strong sentiment and technical region of 1.1. As mentioned in the previous forecast, the combined resistance proved to be too tough to crack for now.

In the week ahead, a continuation of the bullish momentum will require it to breach the upper bearish trend line followed by the middle bollinger band / 1.1 region. If the price action succeeds, 1.11 and the strong sentiment and technical region of 1.12 will likely function as resistance.

A return of the long term bearish trend will probably see the EUR/USD face significant support at 1.08, followed by 1.07 and the lower bollinger band.

Fundamental Analysis

Australian Situation

The impact of the COVID-19 economic fallout has been largely received without excessive apprehension, probably fuelled by optimism of China’s recovery. The speech made by the Reserve Bank of Australia’s governor is mostly within the expectations of the market and hence did not result in any significant impact on sentiment. Having said so, we are mindful of two developing situations that may affect the Australian Dollar.

China is an important trading partner of Australia and plays a significant role in the economy. Firstly, rising tension between the US and China over COVID-19 may spark apprehension and weigh down upon economic prospects. Secondly, Australia is also pushing for an investigation into China’s role in the global pandemic and this will likely affect the relationship between the two countries. Investors are averse towards political tension as the economic impact can be extensive. Such sentiment may weigh upon the Australian Dollar.

Euro Apprehension Takes A Breather

There were a number of Euro Zone related Purchasing Managers’ Indexes released over the week. Most were better than expected with the exception of the German Flash Manufacturing PMI which came out at 36.8 instead of the expected 39.3. These surveys of purchasing managers are 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.

The market appeared to have taken these figures positively and many investors were likely of the opinion that the COVID-19 economic impact on the Euro Zone may not be as impactful as feared. This is especially so when efforts are underway for the reopening of the member economies.

US Unemployment Crisis

The US employment situation continues to deteriorate, bringing another worse than expected week of new unemployment claims. It was estimated to be 2400k but turned out to be 2438K people who filed for unemployment claims for the first time. While the official unemployment rate is 14.7% at the moment, a number of analysts are forecasting that it may hit 20% in the months to come. 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 under distress as the unemployment will put a strain on upstream economic factors such as retail revenue.

Covid-19 Second Wave

A number of countries that have already started the process of reopening their economies are experiencing a rebound of infection cases. This is a highly fluid and risky development as the renewed threats of a virus outbreak may lead to yet another round of economic shutdown. In fact, a few cities in China have been restricted again as virus infection cases rise. We need to monitor the developments closely as this has the potential to affect market sentiment.

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 )

EUR ECB President Lagarde Speech
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.

USA CB Consumer Confidence
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.

EUR ECB Financial Stability Review
This is an analytical report on the current situation of the financial system. It seeks to identify possible stability risks. This report is closely watched by analysts and traders  who are attempting to gain insights on possible future policy actions.

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 Prelim 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 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 Pending Home Sales
The purchase of a house results in economic activities. Renovation jobs will be created for construction workers, the various sub contractors and services associated with new ownership such as power, water, furniture and so on.

EUR CPI Flash Estimate
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.

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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