In the previous EUR/USD weekly forecast, the currency pair dipped below the significant sentiment and technical region of 1.1. The influence of 1.1 would likely be significant and hence it might function as a pivot and start a period consolidation phase between 1.08 to 1.12. Should there be a bullish recovery, we would be looking at an attempt to test 1.12 after breaching 1.11.
As the US China trade dispute tariffs continued to be applied, analysts were warning about the burden on the global economy. Germany continued to report worse than expected economic data, leading to speculations of a economic stump.
Looking at the EUR/USD weekly chart above, we note that the currency pair was bullish for the week. It is currently right above the major sentiment and technical region of 1.1. As mentioned last week, the region of 1.1 indeed appeared to be exerting a pivotal influence. We need to monitor closely for the next few days and weeks to see if needed a consolidation is happening.
Any continuation of the bullish recovery will need to breach the 1.11 resistance before attempting to test the middle bollinger band and significant sentiment and technical region of 1.12.
A bearish return will need to overcome the resistance turned support region of 1.1. This is a significant sentiment and technical region and the lower bollinger band is in the vicinity too. As the EUR/USD made a lower low this week, we cannot discount the possibility of an attempt to test the low again.
Downside Pressure Weakens
Encouraging economic data from China provided some uplift to the overall market sentiment. There were also mention that the US and China will be resuming talks soon. This likely brought further optimism.
On the other hand, the US released weak economic data at the beginning of the week that likely set the expectation of a weaker USD for the week. The US ISM Manufacturing PMI came in at 49.1 instead of 51.2. 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 European Central Bank Spotlight
The ECB is due to release the latest Main Refinancing Rate, together with the Monetary Policy Statement and Press Conference. There is expectation of a cut to the deposit facility rate from -0.4% to -0.5%. There are speculations that further quantitative easing will be introduced.
The ECB has made much effort over the years to stimulate the European economy. With options getting limited, apprehension may increase. If the upcoming monetary policy statement suggests further deterioration and or more effort being done to support the economy, sentiment towards the Euro currency may be hit.
The Week Ahead
We are expecting a number of high impact economic events.
USA Core PPI
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.
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.
EUR Main Refinancing Rate
EUR Monetary Policy Statement
EUR ECB Press Conference
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.
Monetary policy meeting minutes are given much attention by analysts and investors as it has an impact on the economy. The minutes will be analysed thoroughly for insights on the economic policy ahead.
Press conferences may go into unscripted territory during the Question and Answer segment and hence may spur unexpected developments and volatility.
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 Core Retail Sales
USA Retail Sales
Retail sales is a fundamental component of the economy. As consumers spend, it translates to revenue and flows up stream as salaries, wholesales purchase, production orders and so on.
USA Preliminary UoM Consumer Sentiment
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.
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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Traders should always practice proper money management and seek to understand the underlying tones for the market.