The EUR/USD is currently drifting towards the downside.
Technical Analysis
On the EUR/USD hourly chart, we observe a bullish climb when the new forex trading week started. Having said so, the climb is now on hold and giving way to a downside drift.
The currency pair is now in a region of immediate support. If the bearish push continues, we are likely to see the next region of support at 1.1060
If the bullish pressure returns, the EUR/USD will need to push beyond the middle bollinger band and 1.1170 region before we can look forward for more bullish price action.
Looking at the EUR/USD daily chart, we can see the currency pair breaking through the upper bollinger band. This has settled down into a consolidation that is leaning towards the downside.
We can see that the current region is an area of influence, for example back in Jan 2020. Any return of the bullish momentum will require significant push so as to break free from the region and target 1.12.
A continuation of the bearish drop will need to break below 1.1060 and then 1.1. The middle bollinger band will likely function as a support too.
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 US ISM Manufacturing PMI was worse than expected. It came out to be 50.1 instead of 50.5. The 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. This likely added some negative sentiment towards the US dollar.
The EUR CPI Flash Estimate was also worse than expected, reporting 1.2% instead of 1.4%. The 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.
As the Covid-19 crisis continue to affect economies, the speculation of interest rate cuts is increasing. There are now over 1600 confirmed cases in Italy and over 100 in Germany. A number of analysts are now commenting that the European Central Bank will be compelled to ease it’s monetary policy further in view of the crisis. This may have prompted an increase of negative sentiment for the euro currency and by extension the current bearish drift. Gold is back above $1600 as of publication and this suggests lingering risk aversion.
Find below a number of the other significant economic events that are expected for the week.
USA ADP Non-Farm Employment Change
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.
ADP’s statistics is based on the payroll data of approximately 400,000 U.S. business clients. Therefore it is viewed by many as a possible early indication of the US Non-Farm Payroll result.
USA ISM Non-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.
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 Average Hourly Earnings
Consumer earnings is important due to it’s upstream impact. With more earnings comes possible increased consumer spending. This translates to revenues, leading to employment and business expansion.
USA Non-Farm Employment Change
USA Unemployment Rate
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.
The US Non-Farm Payroll is basically data released by the U.S. Bureau of Labor Statistics on a monthly basis that represents the total number of employed US workers, excluding the following employees:
– general government employees
– private household employees
– employees of nonprofit organizations which provide assistance to individuals
– farm employees
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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