In the previous AUD/USD weekly forecast, we observed the currency pair slipped towards the downside. A bullish recovery would see the AUD/USD hit the strong sentiment and technical region of 0.66 and beyond that, 0.67.
In the previous EUR/USD weekly forecast, we noted a bullish spike. A clear breach of 1.11 would see further targets at 1.118 / 1.12.
Looking at the AUD/USD weekly chart above, we see a bullish recovery that extends past 0.66. From a technical point of view, the currency pair may be attempting to return to the previous range above 0.67. If this fails, the bullish climb may lose it’s momentum and head back down to 0.66 and beyond.
Regardless, it is important to note that the long term bearish channel remains valid and it is premature to conclude that the bulls are back.
Looking at the EUR/USD weekly chart above, we observe the currency pair breaching 1.12 and the upper bollinger band. This places the EUR/USD back into the region of consolidation above 1.12.
In the upcoming week, it is important to observe the price action. If the EUR/USD manages to hold on to the foothold above 1.12. we may see further consolidation and an extended bullish target at 1.14.
If the bearish pressure returns. the strong sentiment and technical region of 1.12 will likely be a support, followed by 1.11 and the middle bollinger band.
COVID-19 Coronavirus Crisis
The COVID-19 coronavirus continues to spread in China and globally. It is now present in many countries. Italy has more than 4500 confirmed cases while both Germany and France have more than 600. The numbers are rising in the US too as it reaches over 200 confirmed cases.
There is significant risk aversion as we see equities drop and the price of gold rising again.
US Treasury Yields
The US Treasury yields have fallen as a result of the risk aversion. The 10 years note yield dropped to a record low. Now that the practice of borrowing at negative interest rates in the euro and yen to fund U.S. assets purchase has lost it’s appeal, demand for US dollar likely dropped, adding to the loss of value.
Interest Rate Cuts
A growing number of investors and analysts are speculating that the recent emergency interest rate cut by the US Federal Reserve may not be sufficient. Investors are sensitive towards interest rates and generally prefer higher interest rates. Such speculation may affect the market sentiment, resulting in increased bearish pressure on the currency.
The Upcoming Economic Impact
While the US Non-Farm Payroll performed much better than expected, reporting 273k of jobs created instead of 175k, it was generally taken as a “pre covid-19” environment. Global medias, analysts and investors are expecting the economic figures to worsen going forward. There is likely significant apprehension surrounding this.
For economies already affected by the Covid 19 crisis due to the economic relationship with China such as Australia, it appears that the weakness have already manifested. The Australian Retail Sales came out worse than expected at -0.3% instead of 0%. 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. This situation likely increased negative sentiment for the Australian dollar.
The Week Ahead
We need to monitor the COVID-19 coronavirus crisis closely. If the condition deteriorates, sentiments may be further affected.
There are also many important economic releases and events due next week. You can find a number of them listed below. ( Not in chronological order )
AUS NAB Business Confidence
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.
AUS RBA Deputy Gov Debelle Speech
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.
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.
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 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.
EUR Main Refinancing 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.
EUR Monetary Policy 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.
EUR ECB Press Conference
Press conferences may go into unscripted territory during the Question and Answer segment and hence may spur unexpected developments and volatility.
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.
The Bottom Line
Following an economic calendar is vital so that your forex trading plan factors in the events. Members can log in to their dashboard for an economic calendar, the latest Major Currency Pairs, USD Index, Gold, Crude Oil and Price Action Bias Signals analysis.
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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.
Traders should always practice proper money management and seek to understand the underlying tones for the market. May the pips be with you!