The EUR/USD is currently in a consolidation after an earlier bearish slide.
Technical Analysis
On the EUR/USD hourly chart, we can see some bullish pressure testing the middle bollinger band after the lower bollinger band held on as a support.
If the bullish pressure succeeds, the immediate target is likely to be 1.09 followed by the upper bollinger band.
A return of the bearish momentum will probably face support at the lower bollinger band before moving on to test the strong sentiment and technical region of 1.08.
Looking at the EUR/USD daily chart, we can see the failure of the currency pair to breach the strong sentiment and technical region of 1.10. It is now testing the middle bollinger band.
The EUR/USD appears to be making a series of lower tops since Mar 2020. A successful breach of the middle bollinger band will increase the possibility of a bigger bearish trend.
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 US Retail Sales was reported to be worse than expected. Instead of -8%, it was announced to be -8.7%. This brings the situation of the US Retail Sales alarmingly close to -10% and this likely sparked some negative sentiment. Retail sales provide much upstream economic benefits such as business revenue and hence significantly influences sentiment. If the next release deteriorates further, we may see further risk aversion.
The US Unemployment Claims was reported to be better than expected. It was reported to be 5245k instead of 5350k. Having said so with this latest addition of unemployment claims, analysts are sounding out that the past decade of jobs creation has been erased. Employment is a crucial aspect of the economy and hence this developing situation is likely to be closely monitored by many analysts and investors.
The USA Philly Fed Manufacturing Index turned out to be much worse than expected. Instead of -30, it was reported to be -56.6. As a survey of manufacturers, a negative value suggests that the situation is worsening and this may impact downstream economic activities such as employment.
In view of the above, risk aversion may be heightened and hence bullish pressure on traditional “safe haven” assets such as the US dollar and Gold may be increased.
The Bottom Line
It is important to conduct defensive forex trading ( proper money management, realistic stop loss and take profits, etc ) as sentiments may shift in an instant from unexpected developments, resulting in a corresponding shift in price action.
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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