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EUR/USD Weekly Forecast 29 Jul 19

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In the previous weekly forecast, we noted a downside test on the 1.12 line. The longer the EUR/USD remained above 1.12, the higher would be the possibility of traders to start looking into demand for the euro instead.

While a return of bullish momentum would bring 1.14 into focus, a breach of 1.12 by bearish price action would likely target the lower bollinger band.

Technical Analysis

Looking at the EUR/USD weekly chart above we note that the currency pair did succeed in breaching the 1.12 region. As expected, the EUR/USD tested the lower bollinger band as per our previous forecast like clockwork! ( if only forex can be predicted so accurately always ;p )

With the lower bollinger band acting as a support, it will take significant downside push to gain further grounds. As observed in the chart, price action hardly go beyond the upper and lower bollinger bands. The currency pair will also be facing the support of 1.11.

Should a bullish recovery reclaim the price action, it will have to face the strong support turned resistance line of 1.12, followed by the middle bollinger band.

Fundamental Analysis

Euro Zone Surveys See Red

The economic data released during mid week painted a bleak picture. The German and French flash services and manufacturing surveys came back mostly worst than expected. Germany in particular polled a 43.1 instead of 45.1 for the Flash Manufacturing PMI. A score below 50 indicates contraction. The 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.

This would likely weight down on the Euro currency considering that both Germany and France are significant economies of the region.

Euro Economic Data Again Disappoints

Not letting down on the flood of negative developments, the next day brought a worse than expected Spanish Unemployment Rate. It was reported to be 14% instead of 13.7%. Apprehension was reported as analysts and traders consider the possibility that the economic situation might be crucial. Employment is a fundamental component of the economy as it leads to consumer spending and hence retail sales. A high unemployment rate may be an indicator of a troubled economy.

The German Ifo Business Climate was also reported to be worse than expected. It was reported to be 95.7 instead of 97.1. This is a low last visited a few years ago and that probably brought along with it a significant impact on sentiment. 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. We know that Germany is a significant component of the euro zone economy and this development likely increased that negative sentiment towards the euro currency.

During the European Central Bank rates event, it was revealed that the ECB maintained a hold on the rates. However official comments were reported to be one of possible upcoming cuts and quantitative easing. The anticipated increase in liquidity of the euro currency might prompt selling pressure as supply exceed demand.

US Economic Data Delights

Towards the end of the week, the US reported the Core Durable Goods Orders and advance GDP figures as being better than expected.

Core Durable Goods Orders was reported to be 1.2% instead of 0.2%. Reports on the orders of goods are leading indicators of production and thus the level of economic activities. Increasing purchase orders suggests that manufacturers will increase activity to meet the demand, providing downstream benefits such as employment. On the other hand, decreasing orders may indicate an upcoming economic crunch.

Advanced GDP came in at 2.1% instead of 1.8%. Gross domestic product is a measure of the monetary market value of all the goods and services produced. As an overall measure of economic activity and health, it has considerable influence on the price action.

These economic data likely increased positive sentiment for the US dollar.

Week Ahead

EUR German Preliminary CPI
EUR Core CPI Flash Estimate
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.

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.

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 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 FOMC Statement
USA Federal Funds Rate
USA FOMC Press Conference

Interest rate related statements are given much attention by analysts and investors as it has a direct impact on the currency. Investors usually analyse these statements thoroughly for insights on the interest rate policy.
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.

It is expected that an interest rate cut of 0.25% will happen.

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
USA Non-Farm Employment Change
USA Unemployment Rate

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.
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.
During the US NFP event, volatility may increase. Proper money management is crucial.

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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