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EUR/USD AUD/USD Weekly Forecast 4 May 20

In the previous AUD/USD weekly forecast, while we noted a bullish week for the currency pair, the attempt to breach beyond 0.64 failed. A successful attempt in the coming week would likely see the next resistance at 0.65 followed by the middle bollinger band / 0.66.

In the previous EUR/USD weekly forecast, we noted a bearish week for the currency pair. The currency pair tested the strong sentiment and technical region of 1.08 but failed to move beyond that. A bullish recovery would see possible resistance at 1.09 and 1.1 / middle bollinger band.

Technical Analysis

aud usd forex forecast chart

Looking at the AUD/USD weekly chart above, we observe a bullish week for the currency pair. The AUD/USD has been bullish for a number of weeks now and it has managed to close the week above 0.64. We need to be mindful of any possible bearish correction as the market never travels in a straight line. Furthermore the downside reaction was significant as the currency pair was pushed back below, almost ending the week as a doji.

We remain pleased with the performance of our bollinger bands which had functioned as a cap of sorts on the bullish momentum. Should the bullish price action continue in the week ahead, we are likely to see resistance at the middle bollinger band and the strong sentiment and technical region of 0.66.

If a bearish recovery takes place, the AUD/USD will probably face support at 0.63 and the strong sentiment and technical region of 0.62.

We have plotted the long term bearish trend line as a reminder to all that the current price level remains within the bearish zone and there is nothing concrete to suggest of an end to the downside slide since late 2018.

eur usd forex forecast chart

Looking at the EUR/USD weekly chart above, we note a bullish week for the currency pair. While the bullish momentum was significant, as per our previous forecast it encountered resistance at the middle bollinger band and the strong sentiment and technical region of 1.1.

We have plotted the long term bearish trend line so as to emphasize on the importance of the current price action. A clear breach towards the upside will increase the possibility of an end to the downside slide. Any bullish momentum will likely seek to achieve 1.12 as a target. This will also open up the possibility of a pivot around 1.1.

If the long term bearish trend line manages to exert it’s influence, we will see an unwinding of the EUR/USD’s bullish gains. The currency pair will probably meet support at 1.09 / 1.08 and the lower bollinger band is likely to serve as an target of any extended drop.

Fundamental Analysis

COVID-19 Coronavirus Crisis Continues

The COVID-19 coronavirus continues to spread globally and yields a significant influence on global economics. A number of countries including those in the Euro Zone are considering, preparing or in the midst of easing their Covid-19 lockdown restrictions. This has led to increased optimism as the stalled economies start to move again. This fuels the sentiment that the worse is over, leading to an increase in risk appetite. Having said so, we are of the opinion that the global pandemic is still unfolding and the situation is fluid. Sentiment can change in an instant if any unexpected development occurs and hence do ensure you are trading with proper money management.

Australian Dollar Still Riding The Wave

The perception of a Chinese economy that is past it’s worse continues. This has likely led to the continuation of an increased positivity towards the Australian dollar as China is an important economic partner of Australia.

We still remain cautious about any expectation as the economic situation is still fluid. Any surprise deterioration will possibility trigger volatility and downside risk. An important point to note is that the currency pair is facing resistance increasingly as seen this week with the bullish momentum giving up a big amount of gains above 0.64. Furthermore, with Australia’s push for an investigation into China’s actions in the COVID-19 pandemic, there is growing apprehension of a diplomacy crisis affecting economic potential.

The Reserve Bank of Australia is due to release it’s latest cash rate and statement in the upcoming week. Analysts and traders will be monitoring closely for insights on how the central bank is interpreting the current Australian economic climate.

US Unemployment Claims Concerns

The US Unemployment Claims was reported to be 3839k instead of the expected 3500k. Apprehension is increasing as analysts and traders are seeing a deteriorating trend for the employment climate. A number of analysts are cautioning on the employment impact and mentioned of a possible 20% unemployment rate. Employment is crucial to an economy as it directly translates to spending and consumption. A dire employment environment will likely send ripples upstream and impact the economy.

The US Pending Home Sales and Personal Spending reports were also worse than expected. This is indicative of a US economic situation where consumers are reducing their economic consumption due to the impact of the pandemic. Consumer spending is crucial for the economy as it has an upstream benefits on business revenue, employment and more.

European Central Bank and the US Federal Reserve

Both the European Central Bank and US Federal Reserve announced additional support measures for their respective economies. Both central banks are active in their efforts to cushion the economic fallout. We mentioned in our mid week forecast update that the market is possibly heading into the “which economy is the weaker one” theme that we witnessed months back. Indeed as mentioned, a number of analysts have commented that the US Federal Reserve’s quantitative measures are more aggressive than the ECB’s. This may lead to downside pressure on the US dollar due to it’s increased supply and also likely added to the negative sentiment towards the USD seen towards the end of the week.

The Week Ahead

There are a number of important economic releases and events for the week. Any development that may lend weight to the current apprehension may further add to the sentiment and increase the intensity of it. A much anticipated event will be the US Non-Farm Payroll as recent unemployment claims point to an employment climate that is significantly affected. You can find a number of them listed below. ( Not in chronological order )

AUS Cash 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.

AUS RBA Rate Statement
Interest rate related statements are given much attention by analysts and investors as it has a direct impact on the currency. Investors usually favor a currency with a higher interest rate and will analyse these statements thoroughly for insights on the interest rate policy.

USA ISM Non-Manufacturing 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 ADP Non-Farm Employment Change
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.
ADP’s statistics is based on the payroll data of approximately 400,000 U.S. business clients. Therefore it is viewed by many as a possible early indication of the US Non-Farm Payroll result.

AUS Trade Balance
Trade balance is a measurement on trade volume and net direction. Whether a country is net import or export is important. If more exportation is done, it is likely to be beneficial for the local currency as foreign companies usually buy with the local currency. This creates demand and adds bullish pressure.

RBA Monetary Policy Statement
Monetary policy meeting minutes 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 Average Hourly Earnings
Consumer earnings is important due to it’s upstream impact. With more earnings comes possible increased consumer spending. This translates to revenues, leading to employment and business expansion.

US Unemployment Claims
USA Non-Farm Employment Change

USA 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.
The US Non-Farm Payroll is basically data released by the U.S. Bureau of Labor Statistics on a monthly basis that represents the total number of employed US workers, excluding the following employees:

– general government employees
– private household employees
– employees of nonprofit organizations which provide assistance to individuals
– farm employees

The Bottom Line

It is important to follow an economic calendar as your forex trading plans may be impacted due to shifting sentiments. Members do log in to your dashboards 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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