The EUR/USD is currently bearish.
Technical Analysis
On the EUR/USD hourly chart, we observe a bearish slide for almost half a day now. The currency pair failed to establish a foothold above 1.12 and bearish sentiment took over.
It is now testing the strong sentiment and technical region of 1.10. We need to pay close attention to this support level. If it falls, we may see further bearish weakness.
Looking at the EUR/USD daily chart, we can see the pull back from the upper bollinger band that we mentioned in our previous update. It has since developed into a significant momentum that has broken through the middle bollinger band.
On the longer time frame, we can see the EUR/USD back in the consolidation range of 1.10 – 1.12. If the 1.10 support fails, we may be seeing a new push for the 1.08 region.
Any bullish recovery will likely face the support turned resistance region of the middle bollinger band followed by 1.11
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 are losing significant value as a result of the COVID-19 crisis. Sentiments are high and volatile, adding significant risk to forex trading activities.
The US Federal Reserve made an emergency cut over the weekend bringing interest rate to 0 – 0.25%. A $700 billion support program was announced too. While this likely brought negative sentiment to the US dollar, you may be wondering why is the US dollar still strengthening. If you have been following our forecasts regularly, you will remember that the US economy is often compared with the Euro economy. The European Central Bank is also stepping up on the support measures but when compared to the US Federal Reserve, is in a tighter position. This likely results in more negative sentiment towards the euro vis-à-vis the US dollar. Analysts and investors are speculating on whether the central banks have anymore economic willpower for supportive action.
The German ZEW Economic Sentiment turned out to be much worse than expected. Instead of -29.7 which is already a bad enough indication of pessimism, it was reported to be -49.5%! Germany is a major economy in the Euro Zone and this likely gave sentiment for the euro a big hit. In fact moments ago, the US retail sales was announced to be -0.5% instead of 0.2% but yet price action remain changed for now. Having said so, sentiments can change in an instant, especially now when the situation is volatile. It is crucial that we continue to monitor closely.
Find below a number of the other significant economic events that are expected for the week.
USA Building Permits
The construction of a building generates many economic activities. Jobs will be created for construction workers, the various sub contractors and services associated with new buildings such as power, water, furniture and so on.
USA Philly Fed Manufacturing Index
This survey of manufacturers is important as the sentiment of businesses is a leading indicator of economic health. A healthy sentiment suggests that an economy is moving along well and with the activities of the businesses, downstream benefits will happen such as employment and investment.
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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