The EUR/USD has turned bearish after a day of upside momentum.
Technical Analysis
On the hourly chart, we observe a forex gap at the opening of the new trading week. Long time readers will be familiar by now as we caution that forex gap can happen at any moment. This can be devastating to your account balance and hence proper money management is always a must.
The EUR/USD appears to be drifting towards the 1.0820 region. Having said so, an observation from the last 2 candles show supportive influence. If the EUR/USD reaches the 1.0820 region, a retest of the strong sentiment and technical region of 1.08 may happen.
A return of bullish momentum will likely target 1.085 before heading towards 1.087 and 1.09.
Looking at the EUR/USD daily chart, we can see the currency pair turning bearish. It is prudent to note that with the current global risk aversion, we may see increased downside pressure.
In this longer time frame, we are able to visualize the immediate resistance at 1.087 and the immediate support at 1.08. Upon closure of the current candle, we may then determine with greater probability if the EUR/USD has indeed turned bearish.
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 German Ifo Business Climate has performed better than expected. It was reported to be 96.1 instead of the expected 95. 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. This likely lead to increased positive sentiment for the Euro currency.
Having said so, in hindsight, we note that the optimism seem to have evaporated due to the intense global apprehension towards the Covid-19 crisis. Gold remains at elevated levels of $1640+, suggesting the continued presence of risk aversion sentiment in the markets. Italy is facing an immerse challenge to keep the virus under control and this situation will likely influence the value of the Euro currency.
The USA CB Consumer Confidence is due soon. 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. It is important to monitor this as it may have the potential to further influence the sentiment level of the markets.
Find below a number of the other significant economic events that are expected for the week.
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.
USA Pending Home Sales
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 Crude Oil Inventories
Movement of oil supply may bring insights to the level of general economic activities. For example, an increasing supply may suggest excessive production or diminishing demand. A reducing supply on the other hand may suggest an economic pick up.
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 Preliminary 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.
EURO German Prelim CPI
Consumer Price Index is important because the price of consumer goods is a significant component 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 generate demand for the 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.
USA Chicago 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.
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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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