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EUR/USD Weekly Forecast 2 Sep 19

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In the previous EUR/USD forecast, we noted a recovery of the bullish pressure. The downside momentum of the currency pair again failed to hold on to the region and bollinger bands remained a region of influence. A bearish recovery would need to overcome 1.11 and the lower bollinger band below before an attempt for 1.1.

The week saw actions taken by both sides of the US China trade war, flooding the market with apprehension and risk aversion. US President Trump criticized Fed’s Powell and was reported to have mentioned that he isn’t happy with the Fed chairman.

Technical Analysis

Looking at the EUR/USD weekly chart above, we may be entering into a new phase of the momentum as the test of 1.1 is underway. The currency pair dipped below the significant sentiment and technical region of 1.1.

In the week ahead, all eyes will be on whether the EUR/USD bearish momentum has the ability to hold and breach the 1.1 region. If that happens, we may see a bearish effort to reach 1.08. The influence of 1.1 will likely be significant and hence it may function as a pivot, starting a consolidation phase between 1.08 to 1.12.

Should there be a bullish recovery, we will be looking at an effort to reach 1.12 after taking down 1.11.

US China Trade War Woes Continue

President Trump is expected to implement the new tariff of 15% on certain Chinese exports and the market is usually averse towards geo political situations. As risk aversion floods the market, traditional “safe” assets such as the US dollar will usually gain in value due to demand. Increasingly, analysts are warning about the drag on the global economy due to the trade war. The implications may result in a global slump. Should there be escalations, it may see further risk aversion.

Disappointing German Data

The German Ifo Business Climate was reported to be lower than expected. Instead of 95.1, it was reported to be 94.3. This is a low last hit many years ago. 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.This pattern of deteriorating data is suggesting a weak economic climate.

The German Preliminary CPI was also reported to be lower than expected, coming in at -0.2% instead of -0.1%. 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. Therefore disappointing data may spark speculation of an eventual move to a more accommodation financial policies such as quantitative measures.

The Week Ahead

We are expecting many high impact economic event including the US Non-Farm Payroll.

USA ISM 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 FOMC Member Rosengren Speech
USA FOMC Member Williams Speech
USA FOMC Member Bullard Speech
USA FOMC Member Evans 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.

USA ADP Non-Farm Employment Change
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.
ADP’s statistics is based on the payroll data of approximately 400,000 U.S. business clients. Therefore it is viewed by many as a possible early indication of the US Non-Farm Payroll result.

USA ISM Non-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 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.

USA Average Hourly Earnings
USA Non-Farm Employment Change
USA Unemployment Rate
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.

USA 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.

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.

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