In the previous EUR/USD weekly forecast, we observed a bullish week for the currency pair. The EUR/USD did not manage to hold the major sentiment and technical region of 1.1. Any bullish continuation would need to establish a foothold above 1.1 before moving on.
The economic data streaming out of the US was unpromising. Worse then expected PMIs were released and were below 50 which is a contraction. There were a number of investors and analysts that speculated the possibility of additional interest rate cuts. If indeed, the US dollar might face downside pressure.
The US Non-Farm Payroll came out mixed. While the number of jobs created was lower than expected, unemployment rate fell to a new 50 years low of 3.5%. The market appeared to be pleased as risk appetite appeared to increase resulting in a shift to riskier assets at the expense of the US Dollar.
The latest economic data release from the euro area showed no growth. ECB officials were reported to have commented that growth was disappointingly low and that risks to the downside remained.
Looking at the EUR/USD weekly chart above, we note that the currency pair was bullish for the week. It managed to close the week above the strong sentiment and technical region of 1.1. Strong regions usually exert influence on the price action and we may see more pivotal momentum ahead.
A continuation of the bullish momentum will see the EUR/USD challenge 1.11 and the middle bollinger band next.
A return of bearish pressure will likely need to dismantle the resistance turned support region of 1.1 before heading on to 1.09 and lower bollinger band.
A look at the US Dollar Index serves to remind us that it is premature to dismiss further US dollar strength. It is visibly in a gradual upside trend for the past year.
Mixed Signals From The US
We saw a mixed bag of economic data from the US. The PPI and CPI came in lower than expected.
Producer Price Index is important because the price of goods sold by producers influences the downstream impact of inflation. If inflation is high, a central bank may increase interest rate to mitigate the situation.
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.
Towards the end of the week, the US Preliminary UoM Consumer Sentiment came out better than expected. 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. This positive development likely increased risk appetite.
Market Remains Sentimental
On the daily chart, we see a bearish EUR/USD in the first half of the week. Subsequently it turned bullish as reports of optimism for a successful US China trade deal dialed up the risk appetite. Furthermore, UK PM Boris Johnson was reported to have signaled an U turn on the arrangements for the Irish border, increasing hopes of a Brexit deal. A 48 hours of intense negotiations was stated to follow.
These developments likely flooded the markets with positive sentiment and resulted in a demand for riskier assets.
A sentiment driven market can be violate and makes trading even more challenging as price action can change at a moment’s notice. Therefore it is imperative that proper money management is practiced at all times.
The Week Ahead
There are many speeches by central bank officials due in the coming week. These are highly sentiment, especially when unexpected insights are revealed.
The developments of the US China Trade War and Brexit will likely remain influential.
The German ZEW Economic Sentiment is scheduled to be released early in the week. Investors and analysts will be keen to examine the survey for insights on the pulse of the economy. This may set an early tone for the week.
USA FOMC Member George Speech
USA FOMC Member Bullard Speech
USA FOMC Member Evans Speech
EUR German Buba President Weidmann Speech
USA FOMC Member Brainard Speech
USA FOMC Member Bowman Speech
USA FOMC Member Evans Speech
USA FOMC Member Williams Speech
USA FOMC Member George Speech
USA FOMC Member Clarida 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.
German ZEW Economic Sentiment
As a survey of analysts, this sentiment report holds a weight. Their sentiments may be derived from their working knowledge of the economy and hence may be an early indicator of economic health.
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 up stream as salaries, wholesales purchase, production orders and so on.
USA Philly Fed Manufacturing Index
Business Climate surveys are influential as the sentiment of businesses 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 Building Permits
The construction of a building generates many economic activities. Jobs will be created for construction workers, the various sub contractors and services associated with new buildings such as power, water, furniture and so on.
USA Industrial Production
Industrial production serves as a leading indicator of economic activity. If production is high, it suggests that economic activity is high. This may indicate a functioning economic climate.
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.
There are many more events and hence it is important to follow an economic calendar. By doing so, you can reduce the possibility of an unexpected development affecting your trading plan.
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Traders should always practice proper money management and seek to understand the underlying tones for the market.