The EUR/USD is currently experiencing a bearish recovery.
Technical Analysis
On the EUR/USD hourly chart, we can clearly see the currency pair sliding towards the down side from Tuesday onward. As mentioned, the 1.14 region did not hold and the bearish pressure increased as long positions are swapped for shorts.
The next crucial region to monitor will be 1.12. As a strong sentiment and technical region, many analysts and traders will be watching closely. If it falls, bearish sentiment may increase and open up a complete return to 1.1.
Looking at the EUR/USD daily chart, we can see the pull back influence from the upper bollinger band that we mentioned in our previous update. This is commonly observed in our decade of analysis, especially if the momentum is sharp.
On the longer time frame, we can see the EUR/USD attempting to retreat to the previous range of 1.10 – 1.12. If this attempt fails, we are likely to see resistance at 1.13 and 1.14.
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
Equities worldwide alternated between losses and gains. It appears that the focus has been lost as on the gains, there were signs of relief but we need to understand that 100% dropping 7% and then getting 7% doesn’t bring you back to 100%! The global equities situation remains in the red danger zone. The thing now is to determine what all these mean for the EUR/USD.
US President Trump has announced a travel ban from Europe. This likely created the latest wave of risk aversion, crashing into the financial market like tidal waves. The US dollar seems to have benefited by it as per the retreat of the euro currency. Sentiments are probably betting on a strain on the European economy as a result of this ban.
Moments ago, we see worse than expected US PPI figures. 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. Therefore a lower than expected performance is likely to increase negative sentiment for the US dollar.
The European Central Bank has also just announced that the interest rate remains unchanged. Having said so, economic measures are been taken to support the Euro Zone. As there are a number of market participants that predicted a cut of interest rate, we may see a sentiment driven upside spike of relief before the fundamentals take over.
Find below a number of the other significant economic events that are expected for the week.
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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