EUR/USD Weekly Forecast 5 Aug 19


In the previous EUR/USD weekly forecast we noted that the currency pair succeeded in breaching the 1.12 region. As per our forecast, the EUR/USD tested the lower bollinger band. If bearish momentum continued and remained intense, the lower bollinger band and strong technical and sentiment support of 1.11 would be tested.

Euro Zone surveys were mostly red. Germany in particular polled a 43.1 instead of 45.1 for the Flash Manufacturing PMI. A score below 50 indicates contraction and Germany being a significant component of the Euro economy, probably created significant negative sentiment for the euro currency.

Technical Analysis

Looking at the EUR/USD weekly chart above, as per our forecast, the currency pair attempted to breach the lower bollinger band and important technical and sentiment region of 1.11. Significant regions often have an area of influence whereby the price action would be attracted to. As we can see above, the EUR/USD has since eased back to 1.11. It is very heartening when are forecasts are spot on. However as always. we will like to advise that forex is never 100% predictable. If someone says they have a 100% forecast, they probably have a magical crystal ball! :p

The current price level is crucial. This is an area of test where the bearish momentum previously failed. Should the EUR/USD successfully maintain a foothold below 1.11 in the coming week, we may see further momentum as traders switch positions. 1.10 will likely be the support target.

If bullish pressure returns for a recovery, the EUR/USD will make a run for 1.12 and followed by the middle bollinger band.

Fundamental Analysis

Euro Zone Gets Some Good News

The German Preliminary Consumer Price Index reported a better than expected result. It is 0.5% instead of the expected 0.3%. 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. With Germany being a significant component of the Euro economy, this development likely sparked some positive sentiment for the euro currency. This likely contributed to the initial upside drift of the EUR/USD.

US Joins In

Not to be outdone, the US then reported much better than expected CB Consumer Confidence. It was expected to be 125.1 but reached 135.7 instead. This is more than 5% to the upside. 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.

We always mentioned that the forex trading relationship of the US and Euro Zone is often an ongoing comparison of the weaker economy. This development might have swing sentiment in favor of the US dollar, drawing away from the initial upside drift.

America First Trade War

US President Donald Trump commented that the US will impose an additional 10% tariffs on $300 billion worth of Chinese imports from 1st September. This is in addition to the existing 25% tariffs on $250 billion. In fact the President mentioned that tariffs could go well beyond 25%. A number of analysts are concerned with the potential trade fallout. Some have warned that China is unlikely to back down and will instead retaliate with their own measures. This may lead to an extremely unfavorable economic situation.

The US and China are both major players in the global economy. A protracted trade war may have an adverse effect on the global economy. This is likely to induce some risk aversion.

US Federal Reserve Cuts

The Federal Funds Rate was reduced by 0.25%, and is currently now at 2.25%. This is the first interest cut after the 2008 financial crisis.

While investors usually favor an asset with a higher interest rate, the impact on the US dollar appeared to be opposite. The likely reason to this is that the market was predicting a number of cuts to the interest rate. When the US Federal Reserve Chairman Jerome Powell mentioned that the cut was a “mid-cycle adjustment”, US dollar investors may be relieved at the possibility that this may be the only cut, resulting in the US dollar gaining strength.

Week ahead

There are many economic releases due in the week ahead and it is important to be aware. We need to factor this into our trading plan so that we can lower the possibility of detrimental surprises.

The Euro Zone is light on crucial economic releases this coming week and hence the US may be leading the price action.

USA ISM Non-Manufacturing PMI
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.

USA FOMC Member Bullard Speech
Speeches may contain a question and answer segment that at times go into unscripted topics and result in unexpected developments and volatility.

USA Core PPI
USA PPI
The Producer Price Index is important because the price of goods sold by producers influences the downstream impact of inflation. If inflation is high, a central bank may increase interest rate to mitigate the situation.

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.

Our Price Action Bias Signals are showing an interesting situation that may reflect the current trading sentiments. Members do log in to their dashboard to view our comment and the Price Action Bias Signals.

The Economic Fundamentals Center has been updated with the latest data, featuring the latest interest and unemployment rates which are crucial information for forex trading. You can also download the Android App version.

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