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EUR/USD Forecast Update: Pressure Eases As Economic Data Approaches

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The bullish momentum from the previous week did not continue.

EURUSD Daily Chart

Technical Analysis

In the EUR/USD daily chart above, we note that the currency pair eased on Monday, before resuming a slow up drift.

The upper bollinger band may function as a resistance, so we have to keep a lookout for it. It will be followed by the strong sentiment and technical region of 1.22.

A return of bearish pressure will likely face support at 1.21 and the middle bolligner band.

Sentiment Analysis

SP 500 Daily Chart

Looking at the S&P 500 chart above, we see that equities fell on Monday. Having said so, nothing indicates the end of risk-seeking appetite and hence we will probably see minimal upside contribution to the USD from traders seeking safer assets.

The Cboe Volatility Index is now above 19. As an indicator of volatility, this suggests that volatility has increased. We are warier of big changes in the index, but slight changes as such can provide good peripheral information.

In our EUR/USD weekly forecast, we spoke about the string of bad economic data for the US. In view of this, any positive data this week may have more impact than usual as investors welcome a shift to better economic data for the US dollar.

Up next, we have the EUR EU Economic Forecasts, followed by the USA CPI.

The Eurozone faces the challenge of the COVID-19 pandemic and therefore investors will be sensitive to the forecasted economic data. As always, it is likely to be compared to the US so as to ascertain which economy has a better prospect ahead. The tone of the forecast is important too. A positive stage will probably add upside pressure for the euro currency,

The USA CPI had been performing better than or as expected for the past few releases. If the upcoming data deviates from this, we may see negative sentiment increased for the US dollar. We need to be mindful that 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.

Once these economic releases are completed, we may see a dominant push forming if the data are significant.

The Week Ahead

There are a number of important economic events this week. I highly encourage you to read through and learn about these events. This helps improve your understanding of the market sentiment.

Find below a number of the economic events (not in chronological order).


EUR EU Economic Forecasts

Economic forecasts are important and monitored by traders and analysts. The idea is to obtain insights into possible future economic policies and conditions. Volatility may increase, especially when the actual data is not as per expectations.

USA CPI
USA Core 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 Crude Oil Inventories
This gives insight into the supply and demand of oil, which may tell us more about the economy’s health. An expanding economy typically uses more oil, while a contracting one may result in significant excess.

USA 10-y Bond Auction
USA 30-y Bond Auction
The resulting bond yields may provide insights into the investors’ expectations towards future interest rate conditions. The amount of demand may also provide insights into the investors’ confidence towards the respective currency and economy.

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, while a high unemployment rate suggests a challenging economic climate.

USA Core Retail Sales
USA Retail Sales
Retail sales is a fundamental component of the economy. As consumers spend, it translates to revenue and flows upstream as salaries, wholesales purchase, production orders, and so on.

USA Industrial Production
Industrial Orders serve as a leading indicator of economic activity. If orders are high, production will be increased. This flows downstream leading to employment, revenue, and more.

USA Prelim 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.

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