The EUR/USD is currently pivoting around strong sentiment and technical region of 1.14.
Technical Analysis
On the EUR/USD hourly chart, we can clear see the forex gap that happened upon the start of the market. Contrary to what is commonly expected, there is no guarantee that a forex gap will close it’s gap within the week and it has not done so yet.
It will be of upmost importance that we monitor the price action at 1.14. If the resistance holds, the possibility of a bearish return increases as short positions are placed. In shorter time frames like the hourly, much movement is sentiment driven. The immediate bearish target will likely be the lower bollinger band / 1.13.
If the EUR/USD manages to punch through 1.14, we are looking at a possible bullish target of the upper bollinger band followed by 1.15.
Looking at the EUR/USD daily chart, we can see with increased clarity of the pivotal influence of 1.14. The price action has stretched the upper bollinger band and we are expecting some pull back influence towards the down side. If no major momentum is observed, we shall then look out for signs that the situation is developing into a consolidation.
In forex trading, it is important that we observe all time frames to get the pulse of the current situation. Shorter time frames help to ascertain the current price action and sentiments. Longer time frames allow us to understand the momentum of the current price action and sentiments, whether if it is a sustained drive or a knee jerk reaction.
Fundamental and Sentimental Considerations
On Monday, global equities had their worst day since the 2008 financial crisis. The US stock market closed more than 7% down. This was a significant event and we monitored it closely. We later released an update on this to our premium analysis members stating that the currency markets did not seem to be affected adversely. In hindsight, we confirmed that indeed it was rather inconsequential. In fact, signs are seemingly pointed to a recovery in the stock markets and most markets in Asia did close higher. A number of readers wrote in saying that they panic and closed their positions prematurely. We have to constantly remind ourselves that emotional trading is not sustainable. If you allow your emotions to get the better of you, you may then take profits at lower amounts for fear of losing it or take losses at higher amounts for fear of losing more.
We mentioned in our weekly forecast that the surge in the euro currency appeared to be correlated to the record low of the US 10 year note yield. The US 10 year note has since recovered some loss ground and we shall be monitoring closely to see if the correlation is still valid. If so, we should see the euro losing some ground to the US dollar.
US President Trump mentioned on Monday that he will push for a payroll tax cut. He wants to ensure that hourly workers receive assistance in view of the COVID-19 crisis and financial market pullback. He also mentioned that he will hold a Tuesday afternoon news conference and provide more details of “very dramatic” steps. During times of economic strain, market monuments are very much sentiment driven. This development likely injected some relief of sentiments into the markets.
Find below a number of the other significant economic events that are expected for the week.
USA CPI
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
USA 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.
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