In the previous AUD/USD weekly forecast, we saw a bullish recovery. A return of bearish pressure would likely face supports at the lower bollinger band / 0.61, followed by 0.6.
In the previous EUR/USD weekly forecast, we noted a similar bullish recovery. A return of bearish pressure would likely encounter supports at 1.11, the middle bollinger band and 1.1. If the price action continued to clock an extended range, we might see a test on 1.09 and the strong sentiment and technical region of 1.08.
Looking at the AUD/USD weekly chart above, we observe a bearish week for the currency pair. As per mentioned in our previous forecast, the AUD/USD had indeed tested the lower bollinger band and 0.6.
As 0.6 is a significant sentiment and technical region, there is likely much trading interest for positions in both directions. You should monitor closely on the shorter time frames so as to keep a pulse on the immediate price action. Based on the last few weeks, we may be seeing a pivotal range around 0.6. If indeed so, we may be entering a phase of consolidation.
A bullish recovery will likely face resistance at 0.61 and 0.62 while a continuation of the bearish momentum will probably see the price action challenge 0.6 / lower bollinger band, followed by 0.59 and 0.58.
Looking at the EUR/USD weekly chart above, we observe a significant downside dip for the currency pair.
As per our previous forecast, the EUR/USD achieved all bearish touch points, namely 1.11, the middle bollinger band, 1.1, 1.09 and the strong sentiment and technical region of 1.08. With this, we are pleased that both currency pairs’ technical movements were as per our forecast! In our decade of forex analysis, we have come to the conclusion that a combination of bollinger bands and support and resistance analysis often yields useful insights. In fact these indicators feed into our Price Action Bias Signals analysis. Having said so, we must remember that forex is never 100% predictable and hence defensive trading such as proper money management is critical for sustainable success.
With reference to the circled region, the EUR/USD seems to be pivoting around the strong sentiment and technical region of 1.1. If the currency pair fails to make further significant downside progress, the possibility of pivotal influence increases. Not unlike the AUD/USD, if indeed a pivot has been established, we may be entering into a phase of consolidation.
A continuation of the bearish momentum will likely see supports at 1.08, the lower bollinger band and 1.07. A bullish recovery will probably face resistances at 1.09, 1.1 and the middle bollinger band.
COVID-19 Coronavirus Crisis Continues
The COVID-19 coronavirus continues to spread globally. It is now present in many countries.
Italy has more than 110000 confirmed cases and over 14000 deaths. The situation in Spain has escalated and there are now more than 110000 confirmed cases and over 10000 deaths. Germany, the major economic power of the Euro Zone has more than 80000 confirmed cases and over 1000 deaths.
The situation in the US is rapidly escalating and the number of confirmed cases is now more than Italy at over 240000. The number of deaths is now over 5000. A number of analysts are of the opinion that the US is not well prepared to weather this crisis and that devastating consequences will be seen. With the US being the pandemic epic center now, the situation is closely scrutinized by analysts and investors.
Risk Aversion Lingers
With reference to the Gold and US Index charts above, we can see that the price of gold has risen despite the strengthening of the US dollar. If the actual value of gold is the same, an increase in the value of the US dollar should result in a fall of the price of gold. Therefore this suggests that there is a demand for gold due to risk aversion, resulting in an increase of actual value.
Investors are concerned about the economic impact of the COVID-19 crisis and apprehension is high. Gold is one of the “traditional” safe haven assets and is therefore likely to see increasing demand with increasing risk aversion.
US Unemployment Claims Flashes Warning Lights
After the previous US Unemployment Claims shock, many investors were apprehensive about the next release. The latest US Unemployment Claims was predicted to be 3600k but the actual figure came out to be almost double at 6648k. This likely swamped the markets with risk aversion as the rate of increase is shockingly sharp. 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 in distress.
In view of this new figure of employment deterioration, a number of analysts are predicting the rise of unemployment to 10%. Many are of the opinion that the US government will need to do more in its efforts to provide relief support but question the actual capability to do so.
US Non-Farm Payroll Shock
Despite the better than expected ADP Non-Farm Employment Change, the US Non-Farm Payroll came out worse than expected. Instead of a loss of -100k jobs, the actual figure is 7 times higher at -700k. The unemployment rate has risen to 4.4% from 3.5% instead of the expected 3.8%. As many economists believe that this is just the tip of the iceberg, the outlook for the future is bleak and risky.
A number of our readers wrote in wondering why the US dollar gained in value despite a worse than expected US NFP and to understand this, you have to be aware of the current sentiments. Risk aversion is high and many traders are seeking “safe haven” assets whereby one possible avenue would be the purchasing of gold priced in US dollar. This leads to an increase in demand for the US dollar which adds bullish pressure. In our US NFP analysis where we try to ascertain useful insights from the reaction of currencies to the US NFP performance, it is evident as all currency pairs in our coverage exhibited similar US dollar momentum. Members should log in to their dashboards to review the latest update.
The Week Ahead
We need to monitor the COVID-19 coronavirus crisis closely. If the condition deteriorates or the containment efforts further impact the economic situation, we may see increased volatility which may result in fickle sentiments. This increases the risk and challenge of forex trading as price action may change in an instant. It will be prudent to drop down to shorter time frames to assess the immediate price action as part of your forex planning. The US is facing increasing scrutiny as the situation implodes and threatens to spiral out of control.
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. You can find a number of them listed below. ( Not in chronological order )
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.
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
AUS RBA Financial Stability Review
USA FOMC Meeting Minutes
EUR ECB Monetary Policy Meeting Accounts
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 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 Core PPI
Producer Price Index is important because the price of goods sold by producers influences the downstream impact of inflation. If inflation is high, a central bank may increase interest rate to mitigate the situation.
USA Prelim 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.
USA Core 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.
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, Brent Oil and Price Action Bias Signals 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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