EUR/USD Weekly Forecast 19 Aug 19


In the previous EUR/USD weekly forecast, we noted that the currency pair closed for the week at the important sentiment and technical region of 1.12. This test of the 1.12 region was as expected for any return of bullish pressure. A continuation of the bullish recovery would require the EUR/USD to overcome the middle bollinger and before heading on to 1.13. If the bearish momentum returned, we might see a test of the lower bollinger band and 1.11 support before moving on to face the extended target of 1.10.

We saw the euro currency gained due to weak data from the US. Germany’s Factory Orders also came out much better than expected. Having said so, risk aversion stalled the price action as apprehension towards the US China Trade continued to increase. Gold is usually sought after as a “safe” asset during times of uncertainty and indeed it’s price had been rising.

Technical Analysis

Looking at the EUR/USD weekly chart above, we observe a dip down to the lower bollinger band. This is as expected from our previous forecast. Long time readers will know that the bollinger bands play a significant role in our analysis as after a decade of observation, we find it a useful source of information. In fact, bollinger bands are one of the components used to determine our Price Action Bias Signals. Members who viewed the Price Action Bias Signals last weekend would have seen the “slight bearish” signal, right on track! 😛 Having said so, as always we must not get ahead of ourselves as nothing in forex is 100% certain.

We are at a crucial region. As per highlighted and also looking back in April / May, the bearish momentum failed to hold any ground beyond this region. The multiple attempts to test and breach this support suggests that the sentiment towards this region is significant. If the bearish pressure cracks the support, we may see a test for the important sentiment and technical region of 1.10

Any bullish recovery will require the EUR/USD to breach above 1.11 before heading for a test of the important sentiment and technical region of 1.12.

German ZEW Economic Sentiment Drops

The German ZEW Economic Sentiment was reported to be much worse than expected. Instead of -27.8, it was reported to be -44.1 and this is almost twice as worse. This is a survey of analysts and hence the 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. ZEW President Professor Achim Wambach mentioned that the information points to a significant deterioration in the outlook for the German economy. The geo political challenges such as the US and China trade dispute and the Brexit negotiations likely added to the strain on Germany’s economy.

In the plot of the German ZEW Economic Sentiment releases over time above, we can see the eventual decline of sentiment.

US China Trade Dispute Woes

China mentioned that the US decision to implement additional tariffs on a number of Chinese imports is against the agreement that was reached at the G20 summit in Osaka by both sides. They also commented that China would have to take countermeasures. These developments likely flooded the market with risk aversion, adding to the strength of usual “safe” assets such as the US dollar. Many financial bodies are warning of the impact of the protracted trade war.

Investors are sensitive to geo political developments as there may be a significant impact on the country’s economy and currency. This is compounded by the fact that US and China are both major economies of the world. The fall out is likely to be influential globally.

US Economic Vitals Green

A number of significant US economic data was reported to be better than expected.

  • Core Retail Sales came out at 1% instead of 0.4%
  • Retail Sales came out at 0.7% instead of 0.3%
  • Philly Fed Manufacturing Index came out at 16.8 instead of 10.1

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. This result likely came across as a positive indication of the US economy.
As for the manufacturing survey, it is 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. A result of more than 50% to the upside is an indication of near term optimism.

Despite a lower than expected Preliminary UoM Consumer Sentiment, the US dollar held on to it’s gains.

A Tale Of Two Fronts

We may be seeing the result of two different influences for the EUR/USD. Disappointing Euro Zone economic data sends ripples through the sentiments, suppressing demand for the euro currency while upbeat US economic data attracts demand. On the other hand, the continued apprehension from the US China trade fallout, Brexit and increasingly the Hong Kong protests, may be fueling demand for “safe” assets such as the US dollar and Gold. In fact you can see the rise in the value of gold in recent months on the chart below.

gold rises as risk aversion increases

The Week Ahead

There are many economic data due to be released for both the Euro Zone and US. Geo political issues aside, sentiment and along with it the price action will likely be determined by the expectation and reaction to the economic releases.

USA FOMC Member Quarles Speech
Speeches may contain a question and answer segment that at times go into unscripted topics and result in unexpected developments and volatility.

USA FOMC Meeting Minutes
Monetary policy meeting minutes 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.

EUR French Flash Services PMI
EUR French Flash Manufacturing PMI
EUR German Flash Manufacturing PMI
EUR German Flash Services PMI
EUR Flash Manufacturing PMI
EUR Flash Services PMI
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.

EUR ECB Monetary Policy Meeting Accounts
Monetary policy meeting minutes 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.

USA Flash 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 Jackson Hole Symposium
This is an event attended by many significant figures in the world of finance such as finance ministers and central bankers. Speeches or interviews given may reveal important insights that result in price action.

USA Fed Chair Powell Speech
Monetary policy meeting minutes 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.

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.

Members can log in to their dashboards for an economic calendar. The latest Major Currency Pairs premium analysis and Price Action Bias Signals are available too.

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Traders should always practice proper money management and seek to understand the underlying tones for the market.

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