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EUR/USD Weekly Forecast 10 Jan 21

Welcome to our EUR/USD weekly forecast. I hope you had a great trading week.

I did a few trades and harvested some pips. I spent some time monitoring the developments at Capitol Hall and thought about its impact on our forex trading.

EURUSD Forecast Weekly Chart

Technical Analysis

Looking at the EUR/USD weekly chart, we note a red candle for the week. Having said so, this week actually closed higher than the previous week. It was a bullish week. The reason it is red is because of the forex gap at the start of the week which sent the EUR/USD higher. Forex gaps do happen sometimes and we need to be careful. If one’s open position is caught on the wrong side of it, it may result in a margin call. ( It happened to me once. ) You can read more about forex gaps.

The week gave us a new high and this is indicative of bullish pressure. 1.22 is now functioning as a strong support. The upper bollinger band is acting as immediate resistance and the stretched status of the bollinger bands is likely adding to the downside pressure as a means of pullback.

Sentiment Analysis

Despite the incident at Capitol Hill, market indices show that the market simply shrugged it off and went on its way. The overall sentiment remains positive. Risk appetite is high.

S&P 500 and Oil

We observed above that both the S&P 500 and Brent Oil are climbing. Equity markets are reactive and this gives us some context to the market climate. The increasing value of Brent Oil suggests economic activities are picking up. Demand drives the increase in price.

In the current correlation atmosphere, a bullish market sentiment often results in a bullish EUR/USD.

With the successful Brexit deal, the Euro Zone is benefiting from the certainty in direction. However many details remain to be worked out and are not covered in the deal. Financial services leaving the UK back to the Euro Zone represent an area of uncertainty that may result in some potholes. This separation was never meant to be a straightforward deal.

On the COVID-19 front, the deployment of vaccines has kept hopes high. There are reports stating that the Pfizer vaccine appears effective against the UK strain. This definitely contributes to some optimism.

The US Non-Farm Payroll came out much worse than expected. It reported a loss of 140k jobs instead of the expected 60k gain. Employment is a fundamental component of the economy as it leads to consumer spending and hence retail sales. Therefore, this is something we need to keep an eye on, so as to ascertain if it is just a blimp or something more fundamental.

The Week Ahead

I am listing a number of important economic events that are due to happen in the upcoming week. These may have an impact on the EUR/USD. I highly encourage you to read through and learn about these events. This helps improve your understanding of the market sentiment.

EUR ECB President Lagarde Speech
US 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.

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.

US 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.

US Core Retail Sales
US 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.

Do be mindful that these are not the only events and they are not in chronological order. You should be following an economic calendar so that you will not be caught unaware. Premium members can log in to view the economic calendar.

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