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EUR/USD Weekly Forecast 7 Dec 20

The EUR/USD brought much excitement for the week as it punched through the major technical and sentiment region of 1.2. With this development, many analysts and investors are divided about what happens next. It is time for a review.

EURUSD Forecast forex

Technical Analysis

Looking at the EUR/USD weekly chart above, we could see the long term bullish ascent since early 2020. As always, it is not a straight line and featured a number of pullbacks. We are delighted that the bollinger bands remain useful as indicators of possible support and resistance regions. It plays an important role in our analysis since 2008, more than a decade now!

The EUR/USD is currently above the upper bollinger band. While this does not necessarily mean that a pullback will occur immediately, it is something we need to keep in view in tandem with our observation of the market sentiment.

1.21 will function as a support in the week ahead. If a bearish recovery takes place, we will probably see a downside push for 1.2. A continuation of the bullish momentum will see 1.22 as the next bullish target, followed by 1.23.

SP 500 chart

Fundamental Analysis

For the past 3 weeks, our premium analysis indicated that risk appetite is on the rise. Our Major Currency Pairs analysis showed that the US dollar was gaining over Yen while weakening against the other currencies in our coverage. Based on this observation, we might be seeing a flow of funds outwards from the safety of yen towards riskier assets. The Correlation Analysis of EUR/USD, S&P500, and Gold also indicated the risk appetite was high.

In the above S&P 500 chart, we can see the circled region mirrors the price action of the EUR/USD. This is because the euro currency is widely seen as a riskier asset compared to the USD and often receives demand when risk appetite is high.

Our premium analysis is an extension of our conviction that understanding the market sentiment is crucial to forex trading success. We have come a long way since our founder suffered three margin calls and realized that forex trading requires much more than just merely buying or selling. This conviction has served us and our members well. Over the 3 weeks, we have received emails from members sharing their happiness on earning hundreds of pips. To them, we are most happy to hear that and offer our sincere congratulations! However, as always, our approach to forex trading remains rooted in the practice of proper money management. Nothing in forex is 100% hence do not risk excessively as risk appetite and trends will never last.

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Ongoing Trends

A number of analysts see the current risk-seeking environment as a result of two ongoing developments.

The US election is over and it is increasingly certain that the transition to the new US presidency team will happen. This has brought some form of certainty to the markets as investors are sensitive to political developments due to the possibility of a significant impact on the country’s economy and currency. Investors are hopeful of a renewed global engagement on matters of trade.

The progress of COVID-19 vaccine candidates are encouraging and vaccinations may be happening this month. This is fueling much of the market momentum as the return to an economic climate without the extreme uncertainties brought upon by the pandemic looks increasingly near. Having said so, we do advise all to remain cautious as the nature of a disease is very fluid and highly unpredictable.

As mentioned there are opposing views regarding the current situation. Some analysts focus on the underlying damage to the foundations of the economy and view the upside move unsustainable. This is the reason why we need to always be on top of the various market developments and sentiment. Things can and will change unexpectedly.

The Road Ahead

In today’s connected world, an analysis of a currency pair definitely goes beyond a chart. We need to continue to monitor global developments and sentiment closely. The latest WTO’s Goods Trade Barometer reading ( September 2020 ) of 100.7 suggests that trade is resilient after the steep decline we saw in quarter 2 due to the COVID-19 outbreak. A reading of 100 indicates expansion in line with medium-term trends; readings greater than 100 suggest above-trend growth, while those below 100 indicate below-trend growth.

The week ahead is relatively light on economic releases. However, we do have a few important events such as the European Central Bank Main Refinancing Rate and Monetary Policy Statement. A high interest usually generates demand while a low interest may result in the selling of the currency for better yielding alternatives. Therefore the interest rate result usually has a significant impact, especially when it is an unexpected result. Monetary policy statements are given much attention by analysts and investors as it has an impact on the economy. The minutes will be analyzed thoroughly for insights on the economic policy ahead. Significant volatility may be generated if there are unexpected revelations.

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