The EUR/USD is currently bearish.
Technical Analysis
On the EUR/USD hourly chart, we can see that the previous bullish momentum fizzled out and that led straight into a bearish dip below 1.08. We are currently at the region of a recent low which is likely to yield some support influence.
Looking at the EUR/USD daily chart, we can see that the currency pair will likely face support around the lower bollinger band. Over the past few months, there has been a number of attempts to break below the strong sentiment and technical region of 1.08 and the EUR/USD has generally been making lower highs. This suggests a continued effort to chip away at the support.
If the bearish momentum continues, we will probably see support at the lower bollinger band and 1.07. Should the bearish price action increases it’s intensity, the strong sentiment and technical region of 1.06 will likely be the extended target.
A return of bullish pressure will probably face resistance at the middle bollinger band and 1.09.
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
The major economic data streaming out of the US this week so far are all worse than expected. Besides the USA CPI which we reported in the previous forecast, the USA PPI also turned out to be worse than expected.
The 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. Speculations of a possible interest rate hike may also generate demand for the currency. In this instance, the poor data suggests that the US economy is facing challenges and demand may be dropping.
The USA Unemployment Claims was reported to be 2981k instead of 2500k. These new claims of unemployment will add to the double digit unemployment rate that we seen in the last US Non-Farm Payroll release. Employment is crucial for the economy as it is the main source of revenue for consumers and without it, consumption will be affected. A high unemployment rate triggers a ripple of negative pressure upstream as retail stalls see a drop in business, followed by wholesalers and so forth.
In view of the above and the current market data, sentiment is likely affected by risk aversion. The S&P 500 has been dropping and we are seeing an increase in the Cboe Volatility Index. Gold which is usually considered a “safe haven” financial asset for times of apprehension has also risen in value.
The Week Ahead
There are a number of important economic releases and events for the week. Any development that may lend weight to the current apprehension may further add to the sentiment and increase the intensity of it. You can find a number of them listed below. ( Not in chronological order )
EUR German Prelim GDP
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 and thus wields influence on the home currency.
USA Core Retail Sales
USA Retail Sales
Retail sales is a fundamental component of the economy. As consumers spend, it translates to revenue and flows upstream as salaries, wholesales purchase, production orders and so on.
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
It is important to follow an economic calendar as your forex trading plans may be impacted due to shifting sentiments. Members do log in to your dashboards for the economic calendar. You should also review the latest Major Currency Pairs, USD Index, Gold, Brent Oil analysis to complement your forex trading plan.
Traders should always practice proper money management and seek to understand the underlying tones for the market. May the pips be with you!
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