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EUR/USD Forecast 22 Jul 19

It is increasingly clear that the EUR/USD’s downside momentum has waned. While this does not necessarily mean that it’s over, it will be wise to factor this in our trading plans.

Technical Analysis

Looking at the EUR/USD weekly chart above, we observe a downside test on the 1.12 line. For the bearish trend to resume, it is imperative that the currency pair decisively breach the support. The longer the EUR/USD remains above 1.12, the higher the possibility of traders to switch camps and demand for the euro instead.

A return of bullish momentum will bring 1.14 into focus. Having said so, the middle bollinger band may function as an immediate resistance. Should the currency pair succeed in it’s breach of 1.12, it is likely that the lower bollinger band will be targeted.

Fundamental Analysis

The German ZEW Economic Sentiment reported significant pessimism and in fact it came out worse than expected. Any figure below 0 is considered pessimistic and the reported figure is -24.5 instead of  -22.1 . Germany is the euro zone’s largest economy and hence this bearish development will send ripples across the region. As a survey of analysts, this sentiment report holds a weight. Their sentiments may be derived from their working knowledge of the economy and hence may be an early indicator of economic health. This may also add on to the doubts on how can the European Central Bank handle the situation considering that much quantitative easing measures had already been done.

The US dollar is also facing bearish pressure due to the shift of monetary stance by the US Federal Reserve. It seems to be not too long ago that interest rates were hiked. It was followed by a pause and in recent times, the perception had changed to one of easing and interest rate cuts. While the equity market will likely benefit from an easing financial climate, the US dollar value will likely face pressure due to the weaken demand. Investors are usually attracted by assets with higher interest rates. If the US Federal Reserve officials give further perception that a significant interest rate cut regime will happen, it likely that the US dollar value drops further.

The relationship between the US dollar and Euro currency is usually about which is the weaker economy. Therefore it will be wise to monitor closely on economic data releases.

Week Ahead

The European Central Bank is due to decide on its interest rate this coming week. 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. Also due is the ECB monetary policy statement. It is given much attention by analysts and investors as it has an impact on the economy. The statement will be analysed thoroughly for insights on the economic policy ahead.

German and French service and manufacturing surveys will be reported too. This 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.

There are also important US economic data to be released. Durable Goods Orders and advance GDP are among the data to be released.

Reports on the orders of goods are leading indicators of production and thus the level of economic activities. Increasing purchase orders suggests that manufacturers will increase activity to meet the demand, providing downstream benefits such as employment. On the other hand, decreasing orders may indicate an upcoming economic crunch.

Gross domestic product is a measure of the monetary market value of all the goods and services produced. It is an overall measure of economic activity and health.

It is important to monitor the sentiments and make adjustments when necessary.

There are many more events and hence it is important to follow an economic calendar. By doing so, you can reduce the possibility of an unexpected development affecting your trading plan. Members can log in to their dashboards for an economic calendar.

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