The EUR/USD is currently flat.
Technical Analysis
On the EUR/USD hourly chart, we can see that the strong sentiment and technical region of 1.1 remains a significant resistance. The currency pair’s third attempt to test the line did not even materialize.
If a bearish recovery develops, the EUR/USD will probably face support at the middle and lower bollinger band, followed by 1.09.
Looking at the EUR/USD daily chart, we can see that a ranging channel of sorts has developed over the past few weeks. The bullish momentum is currently held below by both the upper bollinger band and the strong sentiment and technical region of 1.1. We mentioned in our last EUR/USD update that this region will likely need a significant push to break and it remains so.
If the bullish momentum succeeds, we are likely to see resistance at 1.11.
A return of bearish pressure will probably face support at 1.09, the middle bollinger band and the strong sentiment and technical region of 1.08.
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 ranging price action seen above suggests that the market’s medium term outlook in general is apprehensive with no conviction towards either positions. This is not unexpected as the COVID-19 pandemic remains fluid as it unfolds. Readers should be mindful to always evaluate their trades and avoid chasing after elusive trends.
The USA CB Consumer Confidence came out slightly lower than expected at 86.6 instead of 87.1. Having said so, most analysts are relieved that it did not deteriorate much. 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 EUR ECB Financial Stability Review warned of the possible risk of defaults due to the members having taken much debt to cushion the blow of the pandemic. This may also lead to the possibility of an euro currency collapse. Having said so, the European Central Bank is of the opinion that the member governments have succeeded in their efforts to mitigate impact, allowing for an economic recovery.
The market seems to have interpreted the developments positively as we are seeing risk seeking sentiments across various financial assets. The S&P 500 had a bullish day while Gold is on a retreat. Members should log in to view the latest forex sentiment analysis.
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 ECB President Lagarde Speech
USA Fed Chair Powell Speech
Speeches may reveal new insights to economic policies or contain a question and answer segment that at times go into unscripted topics resulting in unexpected developments and volatility.
USA Revised 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.
USA 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 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 Pending Home Sales
The purchase of a house results in economic activities. Renovation jobs will be created for construction workers, the various sub contractors and services associated with new ownership such as power, water, furniture and so on.
EUR CPI Flash Estimate
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.
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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