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EUR/USD Weekly Forecast 28 Oct 19

In the previous EUR/USD weekly forecast, we noted that the currency pair was bullish. It went beyond the middle bollinger band and closed around the strong sentiment and technical resistance of 1.12.

A return of bearish pressure might see the middle bollinger band function as an immediate support. Beyond that, 1.11 and the strong sentiment and technical region of 1.1 were likely to exert supportive influence.

Early in the week, the German ZEW Economic Sentiment was reported to be better than expected. The US Retail Sales came out was worse than expected at -0.3% instead of 0.3%.

Technical Analysis

Looking at the EUR/USD weekly chart above, we observe a bearish currency pair. It has fallen below the middle bollinger band and ended below the support of 1.11.

In the upcoming week, a return of bullish price action will see the EUR/USD face off with  a number of possible resistance such as 1.11, the middle bollinger band and the strong sentiment and technical region of 1.12.

A continuation of the bearish momentum will see the strong sentiment and technical support of 1.1 as a target. Below that, we may be looking at a possible set up for the middle bollinger band and the previous low.

Mixed Economic Results

The week brought mixed economic releases for the market. While French PMIs were generally better than expected, German PMIs were lower than expected. Euro Zone’s PMIs were also lower than expected. 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. Bearish pressure on the euro currency probably increased due to the lack of any bullish catalyst.

Brexit Uncertainty Weighs

The UK is of economic importance to the Euro Zone. This is reflected by the influence Brexit wields on the euro currency. As recent hopes of an expeditious deal fade away, uncertainty is likely exerting a bearish pressure on the currency.

A vote on PM Johnson’s revised deal did not go ahead. A letter was sent to the European Union for an extension to the Brexit date. Since then, the government has introduced a Brexit legislation in hope of securing support for the deal. While the MPs voted in favour for the legislation to be debated, the MPs rejected the Government’s idea of having only 3 days to debate.

There are talks of a general election and the current situation is one that is tense and uncertain. Investors do not take kindly to geo political situations as there may be a significant impact on the economy and currency.

The Week Ahead

In the upcoming week, many economic events are scheduled.

USA FOMC Member Clarida Speech
USA FOMC Member Quarles Speech
USA FOMC Member Williams 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 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.

EUR German Prelim CPI
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.

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 Advance GDP
USA Advance GDP Price Index
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 FOMC Statement
Interest rate related statements are given much attention by analysts and investors as it has a direct impact on the currency. Investors usually favor a currency with a higher interest rate and will analyse these statements thoroughly for insights on the interest rate policy.

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.

EUR Spanish Flash 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.

EUR CPI Flash Estimate
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.

USA Personal Spending
While Personal Spending is similar to Retail Sales, it focuses on consumers. It is a fundamental component of the economy because as consumers spend, it translates to revenue and flows up stream as salaries, wholesales purchase, production orders and so on.

USA Core PCE Price Index
While the Personal Consumption Expenditures index is similar to Consumer Price Index, it focuses on individuals. It is a component of inflation and if inflation is high, a central bank may increase interest rate to mitigate the situation.

USA Employment Cost Index
Employment cost is a leading indicator of inflation. If cost rises, the increase is reflected downstream in the price of production and products. If inflation is high, a central bank may increase interest rate to mitigate the situation.

USA Chicago PMI
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 Average Hourly Earnings
Consumer earnings is important due to it’s upstream impact. With more earnings comes possible increased consumer spending. This translates to revenues, leading to employment and business expansion.

USA Non-Farm Employment Change
USA Unemployment Rate
The US Non-Farm Payroll is basically data released by the U.S. Bureau of Labor Statistics on a monthly basis that represents the total number of employed US workers, excluding the following employees:
– general government employees
– private household employees
– employees of nonprofit organizations which provide assistance to individuals
– farm employees
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.

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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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