In the previous review, we noted that both the AUD/USD and EUR/USD currency pairs faced strong support and resistance levels. The price action would probably be limited. Hence consolidation would occur unless a major development swayed the sentiments.
The US Federal Reserve continued to give dovish indications, adding downside pressure to the US dollar. US debt also surpassed the $22 trillion high and a number of analysts foresee a negative outlook.
AUD/USD Technical Analysis
Looking at the AUD/USD weekly chart above, we observe that the currency pair was indeed limited by the resistance of 0.72 and the middle bollinger band. Based on the previous price action near 0.7000, it is likely that significant buying interest awaits. As the range continues to tighten, we need to consider the possibility of a squeeze breakout. The immediate support and resistance is 0.7000 and 0.7200 respectively.
EUR/USD Technical Analysis
Looking at the EUR/USD weekly chart above, we observe that the currency pair attempted to breach the resistance of 1.14. It failed and retreated down below the middle bollinger band. In the coming week, these 2 regions will continue to offer resistance pressure. Our Price Action Bias Signals indicated a slight bearish bias for the EUR/USD. Members can log in to their dashboards to view the full premium analysis. Downside support levels include 1.13 and 1.12. Based on price actions, 1.12 will likely offer up much buying demand. If the range continues to tighten, we will need to consider the possibility of a breakout.
US Federal Reserve chair Mr Powell mentioned of the volatility in the financial markets at the end of last year during his testimony to the Senate Banking Committee. A number of analysts saw this as an indication that the US Fed is striving for market stability. Mr Powell also mentioned that the financial conditions now are not supporting as much growth as before. This further adds to the hypothesis that the US Fed is accommodating the market undertones. As a lower interest rate usually stimulates the economy, the prospect of further interest rate hikes has thus been pushed further back. The current situation is likely to have dampened sentiments towards the US dollar.
US President Trump said on Saturday that he finds the US dollar too strong. He also seemed to have made a reference to the Federal Reserve Chairman as a person who likes raising interest rates. He leans towards quantitative easing rather than quantitative tightening. We may see a forex gap when trading reopens if the market took heed of the comment.
China Mixed Results
In the past week, economic numbers out of China were mixed. The China Manufacturing Purchasing Managers Index (PMI) came in below 50 which indicated a decline. It was reported to be 49.2. While it was better than the expected 49.1, the fact that it is still below 50 probably affected sentiments of economies that have a huge relationship with China. Australia is one of them.
British Prime Minister Theresa May promised to allow the Parliament to vote to delay Brexit. This effectively eliminates the prospects of a no-deal. While the direct recipient of this development will be the pound, the very idea of a gentle Brexit probably added to the uplift of the euro currency.
The week ahead is a busy one. We have many economic numbers to be released. Here are a number of them:
AUD Building Approvals
AUD Reserve Bank of Australia Rate Statement and Cash Rate
US ADP Non-Farm Employment Change
AUD Retail Sales
EUR Main Refinancing Rate
EUR ECB Press Conference
US Average Hourly Earnings
US Non-Farm Employment Change
US Unemployment Rate
It is good to follow an economic calendar so that you will not be caught off guard. Members can log in to their dashboard for the economic calendar.