In the previous EUR/USD forecast, we noted that the currency pair was bearish for the week. As expected, the middle bollinger band kept in check the bullish effort sending the EUR/USD down to the strong sentiment and support region of 1.12. We were of the opinion that the lower bollinger band and 1.12 region would be tested in the upcoming week.
While the German ZEW Economic Sentiment came in much better than expected, subsequent data such as the German Manufacturing Purchasing Managers’ Index came in worse than expected. As the PMI was worsening at a faster pace, negative sentiment was significant.
North Korea rejected the U.S. Secretary of State Mike Pompeo for nuclear talks and requested for someone who “is more careful and mature in communicating”. Investors are averse to sovereign issues as the economy and market may be significantly affected. Risk aversion was likely triggered.
The US retail sales continued to show progress and reported 1.6% instead of the expected 0.9%. Compared to the previous release of -0.2%, this result is much better. Positive sentiment towards the US economy was likely increased.
EUR/USD Technical Analysis
Looking at the EUR/USD weekly chart above, we note that the week was bearish and the strong sentiment and support of 1.12 had failed. We have spoken about this for a few weeks now, repeated bearish attempts at the 1.12 were chipping away at long positions. As the support dilutes, the downside push will gain momentum.
In the week ahead, it is imperative that we drop down to the shorter time frames. Strong sentiment and technical regions such as 1.12 would often act as a pivot, pulling back the price action to it’s vicinity. Should the bearish momentum continue, we expect both the 1.11 and 1.10 to offer support. Bullish recovery may need to overcome the 1.12 support that is now a resistance. The middle bollinger band will likely be the extended resistance.
The breach of 1.12 is significant. If the currency pair maintains it’s hold in the coming week, we may be seeing an opening opportunity for euro – usd parity.
Price Action Bias Signal Delights
Our Price Action Bias Signal is updated weekly before the start of the trading week so that members can factor it in their forex trading plan. The signal for last week was brought down to slight bearish bias. Members who capitalized on this would have had an excellent week. We have members who wrote in to share their joy on having gain 100 pips of profit.
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Euro Zone Disappointment
The Euro Zone was hit by a number of disappointing economic releases.
The German Ifo Business Climate came in worse than expected at 99.2 instead of 99.9. 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 is exacerbated by the fact that the German economy is the largest in the Euro Zone. The impact on sentiment was likely significant.
The Spanish unemployment rate had worsen compared to the previous month. It increased from 14.5% to 14.7%. As employment is a fundamental component of the economy due to the fact that it leads to consumer spending and hence retail sale, a high unemployment rate is an indicator of a troubled economy. Considering that the Spanish economy is one of the larger ones in the Euro Zone, this data will likely trigger concerns.
For the week ahead, a number of analysts have already warned of possible lackluster euro zone economic data.
We must also be mindful that the uncertainty of the Brexit deal and the upcoming European Union elections are likely a weight on sentiment.
USA First
Riding on the back of the theme of USA First and its economic revival, comes more positive data for the week.
The US Core Durable Goods Orders came in better than expected at 0.4% instead of 0.2%, while the US Durable Goods Orders came in at 2.7% instead of 0.7%. Industrial orders serve as a leading indicator of economic activity. If orders are high, production will be increased. This flows downstream leading to employment, revenue and more. With these better than expected reports, optimism will be increased.
The US Advance GDP turned out to be much better than expected. It was announced to be 3.2% instead of the expected 2.2%. Considering that 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.
An important point to note is that as mentioned in our latest AUD/USD weekly forecast, there was probable risk aversion in the early parts of the week resulting in the rising of US dollar value. Having said so, risk appetite returned in the later part of the week. The US dollar should then weaken due to a shift to riskier assets. While you can see in the shorter time frame that there was a bullish recovery for the EUR/USD towards the end of the week, it was not enough to bring it back above 1.12. This suggests a weak undertone for the euro currency.
The Week Ahead
EUR Spanish Parliamentary Election
Investors are sensitive to sovereign developments as a change politically may have significant impact on the country’s economy and currency.
USA Core Personal Consumption Expenditures Price Index
USA Personal Spending
Personal pricing 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. Personal spending 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.
EUR Spanish Flash GDP
EUR German Prelim CPI
EUR Prelim Flash GDP
Gross domestic product is a measure of the monetary market value of all the goods and services produced. Hence it is an overall measure of economic activity and health.
CPI or 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.
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
Surveys of purchasing managers are 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 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 looming economic crisis.
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 NFE Change is used by a number of analyst as a precursor of the US NFP.
USA ISM Manufacturing PMI
Surveys of purchasing managers are 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 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 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 often go into unscripted territory during the Question and Answer segment and hence may spur unexpected developments and volatility.
EUR CPI Flash Estimate
EUR Core CPI Flash Estimate
CPI or 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.
USA Average Hourly Earnings
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 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. The US NFP often produces significant price volatility due to the importance of it.
USA ISM Non-Manufacturing PMI
Surveys of purchasing managers are 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 Various Federal Reserve Officials Speeches
A number of Federal Reserve Officials are scheduled to speak towards the end of the week. As there may be press conferences which may go into unscripted territory during the Question and Answer segment, any unexpected developments may result in 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. Members can log in to their dashboards for an economic calendar. The latest premium analysis and our popular Price Action Bias Signals are now available too.
Traders should always practice proper money management and seek to understand the underlying tones for the market.
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