On the grand scale of things, the situation has somewhat changed. The EUR/USD is now threatening to break the long-term ascending trend and turn full-on bearish on the weekly technical chart.
In the EUR/USD weekly chart above, we see the currency pair end the week bullish.
Bearish momentum ran out before the opportunity to test the support of 1.18,
The subsequent bullish recovery failed to breach 1.2.
We see the currency pair still within the confines of the immediate descending top.
Should the bullish pressure continue in the upcoming week, it is crucial to monitor if 1.2 holds. A failure to break it again may indicate lingering bearish sentiment.
Looking at the S&P 500 chart above, we can see that the bearish outlook has recovered. It is now positive on the monthly timeframe. We need to remember that the S&P 500 serves as a secondary pulse check on risk sentiment, and hence we use a shorter time frame.
The Cboe Volatility Index is now approaching its lowest in a year. Being an indicator of volatility, this means that the equities market sees increasing stability.
The European Central Bank left the interest rate untouched. Remember, I spoke of the possibility of more quantitative easing? The ECB announced it will increase its bond purchase program significantly in the coming quarter. We need to be mindful that when stimulus is applied, the excess supply of the currency usually exerts a bearish pressure. This development will fuel bearish sentiment towards the euro currency.
In our Premium Analysis, the major currency pairs report indicated that the US dollar has weakened against most assets. An exception is the Japanese yen. This suggests risk-seeking undertones as funds flow out from the yen to seek higher yields. This is something we need to keep in mind. Members should log in immediately to see the full analysis.
The Week Ahead
There are 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.
If the US Federal Reserve gives any indication of an interest rate hike, we may see a hit on risk sentiment as investors fear losing access to cheap money.
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 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 FOMC Economic Projections
Economic forecasts are important and monitored by traders and analysts. The idea is to obtain insights into possible future economic polices and conditions. Volatility may increase, especially when the actual data is not as per expectations.
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.
USA Philly Fed Manufacturing Index
This survey of manufacturers is important as the sentiment of businesses is a leading indicator of economic health. A healthy sentiment suggests that an economy is moving along well and with the activities of the businesses, downstream benefits will happen such as employment and investment.
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