Good day forex traders.
Welcome to our weekly review of the EUR/USD.
In the previous EUR/USD forecast we noted that the currency pair failed to establish itself above 1.14. The underlying bearish momentum is significant.
With the better than expected US retail sales, we should see positive sentiments for the US dollar as retail sales is an important barometer for the economy.
Looking at the EUR/USD weekly chart above we noted that the currency pair ended above 1.14! This is a classic example of how forex can present a twist at the least expected time.
Prior to going full on bullish mode, we need to understand that this may not necessarily be an end to bearish momentum. The currency pair remains below the middle bollinger band and it remains to be seen if the EUR/USD will maintain above 1.14 in the upcoming week.
A continuation of the bullish recovery will probably see 1.16 next. A return of bearish momentum is likely to resume its push towards 1.12.
Many readers have asked what was happening? Wasn’t the US retail sales good?
Well it is good indeed but as mentioned always, short term price action is usually sentimental in nature rather than based on fundamentals. Let us examine the factors contributing to the current situation.
US Federal Reserve 2019 Outlook
It was reported that the US Federal Reserve chair Powell mentioned of a scenario where the interest rate hikes may pause in 2019 due to the possible economic challenges. Factors include external factors such as weak demand and internal factors such as reduced stimulus. We know that investors usually favour a currency with a high interest rate and shun one with a low interest rate. This mention of a halt may have induced a downside knee jerk reaction to the US dollar. ( which translates to the EUR/USD gaining ).
Oil Price Woes
Many people may not be aware that the US is now the world’s largest oil producer. This is due to the advancement of oil technologies such as fracking.
However oil has taken a down turn and has fallen much. This will affect the oil exports of the US and the supplementary industries such as oil refining.
Across the Atlantic, the euro zone remains plagued with it’s own challenges. The largest economy in the union Germany, show signs of slow down and Brexit has yet to be cleared. Having said so, the European Central Bank is of the view that domestic demand remains robust and hence adverse risks are still very much managed.
Next week brings a number of economic data such as core durable goods orders for the US and manufacturing surveys for the euro zone economies. You should drop down to the shorter time frames to get a pulse check on the immediate price action.