In the previous AUD/USD weekly forecast, we noted the third bearish week in a row. The middle bollinger band and the strong sentiment and technical region of 0.68 would likely be significant support regions.
In the previous EUR/USD weekly forecast, we observed the third bearish week in a row too. A break below the middle bollinger would suggest bearish ambitious, putting the currency pair back within the main bearish channel since Sep 19. The 1.1 region is a strong sentiment and technical support and would likely be a challenge.
Looking at the AUD/USD weekly chart above, we observe that the currency pair is bearish for the 4th week in a row. It broke through the middle bollinger band and is now approaching the strong sentiment and technical region of 0.68.
A break of the 0.68 support will open up the path to the lower bollinger band. It will be good to drop down to the shorter time frames to ascertain the price action near 0.68.
A return of bullish momentum will see the AUD/USD face the middle bollinger band, followed by the sentiment and technical region of 0.69.
Looking at the EUR/USD weekly chart above, we observe a bearish week for the fourth time in a row too.
The middle bollinger band was breached and the currency pair is now above the strong sentiment and technical support of 1.1. In the week ahead, it will be crucial to observe the price action around 1.1. If we see a clear breach, bearish momentum may increase as stops get taken out.
A bullish recovery will need to take down the middle bollinger band and 1.11 before heading to 1.12 which is also a strong sentiment and technical region.
Risk Aversion Strikes Again
The Wuhan coronavirus crisis is escalating and with full media coverage, the situation has likely swamped the market with risk appetite. Equities markets were affected too. If China continues to put cities on lockdown and countries step up measures, apprehension and risk aversion will likely increase.
We can see in the chart above that gold has risen in value compared to last week and this is despite an increase of the US dollar index. This suggests significant risk aversion as gold is often an asset of choice during times of risk aversion.
Positive Economic Figures But . .
The Australian Employment Change was better than expected. The Australian Unemployment Rate also dropped to 5.1%. Over in the Euro Zone, most of the Purchasing Managers’ Index releases were better than expected too.
Unfortunately, the Wuhan coronavirus crisis has likely taken it’s toil on the sentiments and we do not see a corresponding rally that is significant. This serves as an important reminder that sentiments are a real challenge and can change in an instance.
The Week Ahead
We need to monitor the Wuhan coronavirus crisis closely. If the condition deteriorates, sentiments may be further affected. There are also many important economic releases and events due next week. 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.
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.
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.
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 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 Trimmed Mean CPI
EUR German Prelim CPI
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 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.
USA FOMC Statement
Monetary policy 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.
USA Federal Funds 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.
USA FOMC Press Conference
Press conferences may go into unscripted territory during the Question and Answer segment and hence may spur unexpected developments and volatility.
USA Advance GDP
USA Advance GDP Price Index
EUR Spanish Flash 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 Employment Cost Index
Employment cost is a leading indicator of inflation. If cost rises, the increase is reflected downstream in the price of production and products. 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.
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Traders should always practice proper money management and seek to understand the underlying tones for the market.