Weekends are the best time for us to evaluate our forex performance. Often we focus too much on the chart and miss out on other obvious clues.
In the EUR/USD weekly chart above, we see the currency pair dipped significantly.
It broke through the middle bollinger band and strong sentiment region of 1.2.
I indicated a descending top for the EUR/USD. This suggests the possibility of a shift towards the lower levels of <1.2 instead of consolidation between 1.2 – 1.22.
If the week ahead continues to be bearish, it is likely that an attempt will be made to hit 1.18.
Looking at the S&P 500 chart above, we can see that the monthly outlook is bearish. However, it is wise to note the climb last week.
The Cboe Volatility Index has lowered slightly, so I believe that volatility has eased.
In our Premium Analysis Service, we track the correlation between S&P 500, EUR/USD, and Gold. This week, the situation is showing a positive sentiment towards the US Dollar.
This is important to note, as US dollar strength can be due to optimism or apprehension. This is a common mistake made by forex traders as one risks being on the wrong side of the trade.
In the US Non-Farm Payroll analysis, it clearly shows that the much better than expected US NFP boosted the demand for US Dollar. It reported 379k jobs created instead of the expected 197k. This was much welcomed by investors than the worse than expected US ADP.
These various indicators are core to a successful forex trading plan, as an in-depth understanding of the market sentiment is crucial. Members are advised to log in immediately to view the Correlation Analysis and US NFP Analysis.
The US Employment Rate fell to 6.2%. 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, while a high unemployment rate suggests a challenging economic climate.
The European Central Bank officials are expected to meet in the coming week for their interest rate decision. This comes at a time when investors and analysts are mindful of the possibility of more quantitative easing. We need to remember when stimulus is applied, the excess supply of the currency usually exerts a bearish pressure. This meeting will be closely monitored and price action may be affected. Especially if the result is not as per expected.
The Week Ahead
There are important economic events this week. I highly encourage you to read through and learn about these events. This helps improve your understanding of the market sentiment.
USA Core 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 Crude Oil Inventories
This gives insight into the supply and demand of oil, which may tell us more about the economy’s health. An expanding economy typically uses more oil, while a contracting one may result in significant excess.
USA 10-y Bond Auction
The resulting bond yields may provide insights into the investors’ expectations towards future interest rate conditions. The amount of demand may also provide insights into the investors’ confidence towards the respective currency and economy.
EUR Main Refinancing Rate
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.
EUR Monetary Policy Statement
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.
EUR ECB Press Conference
Press conferences may go into unscripted territory during the Question and Answer segment and hence may spur unexpected developments and volatility.
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