The EUR/USD is currently bullish.
Technical Analysis
On the EUR/USD hourly chart, we note that the currency pair has generally been drifting towards the upside within the upper bollinger bands. Considering the somewhat gentle nature of the ascension, sentiments are likely not in the extremes.
If this state of the forex market continues, we are likely to see a test of 1.08 / middle bollinger band. A successful break below may signal the end of the bullish channel.
On the other hand, if the bullish channel holds, the next resistance is likely to be 1.09 / upper bollinger.
Looking at the EUR/USD daily chart, we can see the bullish climb since the start of the week. It is evident that the bollinger bands are applying influential pressure to close off the wide range. The market will never move in a straight line and will often seek to regain equilibrium, especially if the price action is the result of sentiments.
Pay close attention to the resistance of 1.09 and support of 1.08. A clear breach on either side will likely be a magnet for additional commitments to the corresponding direction.
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 continue to suffer as a result of the COVID-19 crisis. Sentiments are high and volatile, adding significant risk to forex trading activities. While today looks set to be a day of green for equities, there is no way to predict what will happen tomorrow. Be prudent.
We saw a series of mixed releases from the Euro Zone. These Purchasing Managers’ Indexes are surveys of purchasing managers and are important as the sentiment of purchasing managers is a leading indicator of economic health. A healthy sentiment suggests that an economy is moving along well while a cautious sentiment may see less business activities due to prudence. Some were better than expected, some worse. We have a couple of US Purchasing Managers’ Indexes coming right up and analysts / investors will likely put it on a comparison against the Euro Zone’s.
The US Federal Reserve has announced it’s commitment to provide unlimited support. Think Quantitative Easing but unlimited. While this may help soften the economic impact, the ample supply of US dollars will inevitably result in some bearish pressure. This may be one of the reason for this current EUR/USD upside drift.
Find below a number of the other significant economic events that are expected for the week.
USA Flash Manufacturing PMI
USA Flash Services PMI
Purchasing Managers’ Index is a survey of purchasing managers and is important as the sentiment of purchasing managers is a leading indicator of economic health. A healthy sentiment suggests that an economy is moving along well while a cautious sentiment may see less business activities due to prudence.
USA Richmond 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.
EUR German Final Ifo Business Climate
Business Climate surveys are influential as the sentiment of businesses is a leading indicator of economic health. A healthy sentiment suggests that an economy is moving along well while a cautious sentiment may see less business activities due to prudence.
USA Core Durable Goods Orders
USA Durable Goods Orders
Reports on the orders of goods are leading indicators of production and thus the level of economic activities. Increasing purchase orders suggests that manufacturers will increase activity to meet the demand, providing downstream benefits such as employment. On the other hand, decreasing orders may indicate an upcoming economic crunch.
USA Unemployment Claims
Employment is a fundamental component of the economy as it leads to consumer spending and hence retail sales. A low unemployment rate is an indicator of a healthy functioning economy.
USA Final 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 PCE Price Index
The Personal Consumption Expenditures index is similar to the Consumer Price Index but it focuses on individuals. It is a component of inflation and if inflation is high, a central bank may increase interest rate to mitigate the situation.
USA Personal Spending
While Personal Spending is similar to Retail Sales, it focuses on consumers. It is a fundamental component of the economy because as consumers spend, it translates to revenue and flows up stream as salaries, wholesales purchase, production orders and so on.
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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