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EUR/USD AUD/USD Weekly Forecast 6 Jan 20

In the previous AUD/USD weekly forecast, we noted a climb towards the strong sentiment and technical region of 0.7. We were commenting on the possibility of a technical squeeze for a while now and hence congratulations to all readers who were positioned to take advantage of the situation. The currency pair had stretched beyond the upper bollinger band and hence we expected some pull back influence, together with the resistance push back at the 0.7 region.

In the previous EUR/USD weekly forecast, we noted a bullish test on the strong sentiment and technical region of 1.12. As both the upper bollinger band and 1.12 were in the vicinity, resistance was likely to be significant.

Technical Analysis

Looking at the AUD/USD weekly chart above, we observe a bearish week. As expected, the exertion of pull back by the upper bollinger band combined with the resistance at 0.7 took it’s toil on the price action. We are now back under the upper bollinger.

In the week ahead as liquidity picks up, we will need to monitor if the dominant bearish sentiment remains. The current price level is above the long term downside channel which may translate to a break in bearish momentum. Bullish recovery will need to over come the upper bollinger band followed by the strong sentiment and technical region of 0.7.

A continuation of bearish pressure will see the currency pair face off against the supports at 0.69, the middle bollinger band and the strong sentiment and technical region of 0.68.

Looking at the EUR/USD weekly chart above, we see a failed attempt to gain a foothold above 1.12. Unlike the AUD/USD, the EUR/USD is still within the region of the long term bearish channel.

In the week ahead, a return of bullish recovery will bring the upper bollinger band and 1.12 into focus again. A continuation of the downside momentum will likely see an attempt to take 1.11 followed by the middle bollinger band.

Risk Aversion Strikes

On Friday, it was reported that US President Donald Trump ordered a strike on Baghdad airport, killing the top Iran commander Qasem Soleimani. Thousands more US troops were also sent to the Middle East as tension rises. The US believes that the Iran commander was on the verge of attacking US diplomats. Iran was infuriated, vowing a harsh revenge and crushing defeat.

In the latest development, the US President tweeted that the United States will target 52 Iranian sites that are very high level & important to Iran and the Iranian culture in the event of any Iranian retaliation.

Investors are sensitive to geo political developments as there may be a significant impact on the country’s economy and currency. This development likely resulted in the swamping of the markets by risk aversion.

Gold which is usually considered as a “safe” asset, has climbed to a new high of more than $1550.

In the upcoming week, we must pay close attention to the US – Iran crisis. Any increase in tension or adverse development will likely trigger more risk aversion and result in the increased demand for “safe” assets.

The Week Ahead

Many important economic releases and events are 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.

USA FOMC Member Williams Speaks
USA FOMC Member Clarida Speaks

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.

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 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.

AUS Building Approvals
The construction of a building generates many economic activities. Jobs will be created for construction workers, the various sub contractors and services associated with new buildings such as power, water, furniture and so on.

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.

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.

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.

USA 30 Years Bond Auction
The resulting bond yields may provide insights into the investors expectation towards future interest rate conditions. The amount of demand may also provide insights into the investors’ confidence towards the respective currency and economy.

AUS Retail Sales
Retail sales is a fundamental component of the economy. As consumers spend, it translates to revenue and flows up stream as salaries, wholesales purchase, production orders and so on.

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.

USA Non-Farm Employment Change
USA Unemployment Rate

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

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.


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