The EUR/USD is currently bullish and testing a trend line on the EUR/USD daily chart.
Technical Analysis
On the EUR/USD hourly chart, we can see a surge of the upside pressure a few hours ago, possibly from the euro zone. While the currency pair has broken up above the previous consolidation channel, we need to monitor if the current foothold remains. This is important for any bullish momentum to continue.
Looking at the EUR/USD daily chart, we can see the current attempt of the currency pair to decisively breach the middle bollinger band. As mentioned, there is a bearish trend line since early March 2020 that is in the vicinity. It is a series of lower tops and the current price action is now at the potential position of the next lower top. A failure of this trend line to hold will lend more weight to the bullish scenario.
If the bearish trend line holds, we are faced with a possible strong support at 1.08. Should this happen, we may see a forex squeeze that results in a breakout. Otherwise, beyond 1.08 lies the lower bollinger band as the next possible support.
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 Spanish Unemployment Rate turned out to be better than expected. It reported a 14.4% unemployment rate instead of the expected 15.6%. 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. This positive result likely provided a bullish undertone to the current market sentiment.
Equities worldwide are mostly climbing, probably due to an increase of risk appetite. Other correlated financial assets seem to be showing the same indication too. For example, the price of Gold is currently ranging with a downside pressure. In our premium analysis where we track forex sentiment, we are also noting an increase in the ratio of EUR/USD long positions. Members can log in to their dashboard for the latest analysis.
The increase in risk appetite may be due to the perceived optimism that a number of countries including those in the Euro Zone are considering, preparing or in the midst of easing their Covid-19 lockdown restrictions. With parts of the economy starting up, there is a perception that the worse is over. Having said so, we are of the opinion that the global pandemic is still unfolding and the situation is fluid. Sentiment can change in an instant if any unexpected development occurs and hence do ensure you are trading with proper money management.
The rest of the week brings us a number of crucial economic releases that may influence sentiment. Analysts will be looking at the US GDP data for insights and both the US Federal Reserve and European Central Bank are due to hold their interest rate events. In a few moments, the US CB Consumer Confidence survey will be released. 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.
Find below a number of the significant economic events that are expected for the week. ( Not in chronological order )
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 CB Consumer Confidence
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 Advance GDP
EUR French Flash GDP
EUR Spanish Flash GDP
EUR Prelim Flash 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 Advance GDP Price Index
The GDP Price Index is important because it is a measurement 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 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.
USA FOMC Statement
Monetary policy statements are given much attention by analysts and investors as it has an impact on the economy. The minutes will be analysed thoroughly for insights on the economic policy ahead. Significant volatility may be generated if there are unexpected revelations.
USA Federal Funds Rate
A high interest usually generates demand while a low interest may result in the dumping of the currency for better yielding alternatives. Therefore the interest rate result usually has a significant impact, especially when it is an unexpected result.
USA FOMC Press Conference
Press conferences may go into unscripted territory during the Question and Answer segment and hence may spur unexpected developments and volatility.
EUR Main Refinancing Rate
A high interest usually generates demand while a low interest may result in the dumping of the currency for better yielding alternatives. Therefore the interest rate result usually has a significant impact, especially when it is an unexpected result.
EUR Monetary Policy Statement
Monetary policy statements are given much attention by analysts and investors as it has an impact on the economy. The minutes will be analysed thoroughly for insights on the economic policy ahead. Significant volatility may be generated if there are unexpected revelations.
EUR ECB Press Conference
Press conferences may go into unscripted territory during the Question and Answer segment and hence may spur unexpected developments and volatility.
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
USA ISM Manufacturing 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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