It is the weekend and I hope your forex trading week was fantastic.
As we prepare for the new week ahead, it is important we understand what happened and the impact on the market sentiment.
In the EUR/USD weekly chart above, we see the currency pair end the week a doji and at around the same level as the week before.
The two regions of support and resistance I highlighted in my forecast updates, namely 1.2150 and 1.2, held strong and shaped the price action.
The EUR/USD is now at a crossroad, with space to maneuver on both sides of the trade. However, if we are to consider the long-term trend, there may be some bullish pressure.
Any bullish attempt to push higher will without doubt face the strong resistance region of 1.22.
A bearish dump will need to see 1.215 and 1.2 breached before more can be expected.
I want to focus on the price of gold as it is one of the important gauges of market sentiment. Despite the occasional bullish news that we hear about in the media, it is vital we analyze the actual data ourselves.
Looking at the gold weekly chart above, we note that the value has been dropping since Aug 2020. It is now below $1800, and if it stays below, there may be more bearish pressure ahead. Investors usually hold gold as a hedge against risk aversion and apprehension. This bearish trend of gold suggests that market sentiment is improving. If this continues, we may see the S&P 500 and EUR/USD climb higher as investors seek riskier options.
The USA Retail Sales data turned out to be 5.3% instead of 1.1%. Positive sentiment was likely generated as investors gained confidence in the economic recovery. Retail sales is a fundamental component of the economy and is closely monitored by many. As consumers spend, it translates to revenue and flows upstream as salaries, wholesales purchase, production orders, and so on.
The initial dip was a sentimental reaction by investors as the positive news for the US economy is good for the US dollar. Having said so, I always mentioned the importance of understanding the market sentiment. The current economic climate usually rewards the riskier currencies when risk appetite increases. Hence the EUR/USD climbed. It is vital that you keep a close watch on the market pulse to avoid false momentum and unnecessary loss of capital.
The central banks of the US and European Union revealed in their recent minutes that the pandemic situation requires continued accommodative policies. This means that the market will continue to have easy access to liquidity and thus fueling economic activity. Risk appetite may continue to receive a boost from this.
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.
EUR German ifo Business Climate
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 Fed Chair Powell Testimonial
Testimonials may reveal new insights into economic policies or the question-and-answer segment may go into unexpected topics resulting in unexpected developments and volatility.
USA CB Consumer Confidence
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.
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 Prelim GDP
Gross domestic product is a measure of the monetary market value of all the goods and services produced. It is an overall measure of economic activity and health and thus wields influence on the home currency.
USA Chicago PMI
A 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 fewer business activities because of prudence.
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