EUR/USD Weekly Forecast 30 Sep 19

In the previous EUR/USD weekly forecast, we noted a bearish week. The test of the significant sentiment and technical region of 1.1 failed. It was crucial to monitor if the bearish pressure would retest the 1.1 region. Beyond 1.1 lies the lower bollinger band.

The US President mentioned that China’s move to increase agricultural purchases would not be sufficient for an agreement and he was not rushing for a deal before the 2020 Presidential election. The US Federal Reserve Bank cut the Federal Funds Rate from 2.25% to 2% as expected and the accompanying comments were rather flat.

While the German ZEW Economic Sentiment came out much better than expected, it remained below 0 which reflects pessimism. As the largest economy in the Euro Zone, sentiment towards the region would likely be affected.

Technical Analysis

Looking at the EUR/USD weekly chart above, we note that the week was bearish. The currency pair attempted to test the lower bollinger band and 1.09 support but failed to establish a foothold at 1.09. Bollinger bands remain influential as we often see price interactions in those region and is one of the considerations in our Price Action Bias Signals.

In the upcoming week, we need to observe if the EUR/USD remains below 1.1. If so, the bearish pressure may build up as traders place shorts below the significant sentiment and technical region of 1.1. Beyond 1.09, the next likely target will be 1.08 which is also a significant sentiment and technical region. Whether will we see a move towards the previous low from late 2016 of 1.035 – 1.04 is not clear for now. It will be prudent to always evaluate the momentum on both the short and long time frames. From a longer time frame point of view as per the weekly chart, the downside trend is still rather valid.

A bullish recovery will need to overcome the significant sentiment and technical region of 1.1 before targeting 1.11. The extended target will be the lower bollinger band and another significant sentiment and technical region, 1.12.

Euro Zone Sees Red

The week brought a flood of worse than expected economic releases. PMIs of Germany, France and Euro Region as a whole were worse than expected. This is for both the services and manufacturing industries. 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.

The current situation paints a bleak outlook and likely set the stage for the bearish week. A number of analysts believe that the dovish situation is adding pressure for the European Central Bank as it has already provided significant support such as cutting interest rates and providing quantitative easing. As monetary support continues, it is likely to add downside push for the euro’s value as supply is increased and likely without a matching increase in demand.

US Personal Spending Bumps

The US Personal Spending was reported to be 0.1% instead of the expected 0.3%. 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.

In the upcoming week, the US Non-Farm Payroll and Unemployment Rate will be released. If there are further economic data which is below expectation, bearish sentiment towards the US economy may increase.

The Week Ahead

There are many important economic events in the coming week for the EUR/USD. It is imperative that you practice proper money management so that any unexpected developments may be mitigated. In shorter time frames, price action is often sentimental in nature. This means that price action may change suddenly without warning.

There are many speeches due in the coming week.
USA FOMC Member Evans Speech
USA FOMC Member Clarida Speech
USA FOMC Member Bullard Speech
USA FOMC Member Bowman Speech
EUR German Buba President Weidmann Speech
USA FOMC Member Williams Speech
USA FOMC Member Evans Speech
USA FOMC Member Quarles Speech
USA FOMC Member Clarida Speech
USA FOMC Member Rosengren Speech
USA Fed Chair Powell Speech
USA FOMC Member George 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.

EUR German Preliminary 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 Chicago 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.

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 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 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 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 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 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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