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EUR/USD Forecast 25 Jan 21

Welcome to our EUR/USD forecast.

A new trading week always brings new hopes for me! I regularly evaluate my previous trades and look forward to applying the lessons learned.


Technical Analysis

I zoomed out to the EUR/USD daily chart to allow us a better perspective.

It is clear that the currency pair is facing strong resistance at 1.22, which happens to be the middle bollinger band. The combination of these two technical aspects may bring greater synergy for the resistance.

We cannot assume that a continuation of the previous bullish trend is possible unless 1.22 falls. Bearish supports lie at 1.21 and the strong technical region of 1.2.

Sentiment Analysis

S&P 500 Chart

The S&P 500 receded after reaching a high. I spot the similarity between this chart and the EUR/USD. Notice how a dip happens for both around 15 Jan? This is the reason I never trade based on only a forex chart. A holistic review of the various markets often gives me useful insights.

The week ahead is important, as almost 25% of the companies on the S&P 500 index are scheduled to report their earnings.

A particular point to note is the release of earnings by tech giants Apple and Facebook. Analysts expect them to report good revenues for the holiday season. Should this happen, we may see increased risk appetite because of the positive sentiment. This usually results in bullish pressure for the euro.

On the other hand, if we see disappointing results, risk aversion may increase and this often leads to a flight towards safer assets such as the US Dollar.

The Week Ahead

There are important economic events this week. I highly encourage you to read through and learn about these events. This helps improve your understanding of the market sentiment.

USA FOMC Statement
Monetary policy statements are given much attention by analysts and investors, as it has an impact on the economy. The minutes will be analyzed thoroughly for insights on the economic policy ahead. Significant volatility may be generated if there are unexpected revelations.

USA Federal Funds 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.

USA FOMC Press Conference
Press conferences may go into unscripted territory during the Question and Answer segment and hence may spur unexpected developments and volatility.

USA Advance GDP
USA Advance GDP Price Index
The GDP Price Index is important because it is a measurement 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 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, while a high unemployment rate suggests a challenging economic climate.

Be mindful that these are not the only events and they are not in chronological order. You should follow an economic calendar so that it will not catch you unaware. Premium members can log in to view the economic calendar.

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