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EUR/USD Weekly Forecast: Euro focused on push for 1.2

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The EUR/USD had a bullish week as it continued the determination to hit 1.2 from the previous week.

EURUSD Weekly Chart

Technical Analysis

In the EUR/USD weekly chart above, we see the currency pair tested the strong sentiment and technical region of 1.2.

Being a price region of significant trading interest, we may see a sizable downside pressure against any bullish momentum.

I want to bring your attention to the trend line drawn.

This is the upper trend line of the downside trend that started at the beginning of the year. This may increase the resistance against the climbing euro as bearish traders push back. If the EUR/USD decisively breaches the trend line, it is a probable signal that the bearish run is over.

A return of the bearish trend may see an eventual plunge towards 1.16.

Sentiment Analysis

SP 500 Daily Chart

Looking at the S&P 500 chart above, we can clearly see that equities continue to climb. This indicates the presence of risk-seeking appetite, which translates into reduced risk aversion. Hence we will probably see minimal upside contribution to the USD from traders seeking safer assets.

The Cboe Volatility Index bears the same indication as it remains below 17. As an indicator of volatility, this means that the volatility in the market is not excessive.

Currently, the situation is friendly towards any attempt by the euro currency to climb as the market has already priced in the covid challenges for the euro area. In our previous Retail Sentiment analysis for members, we see that retail traders are reducing their bets on a rising EUR/USD. From a contrarian point of view whereby most retail traders lose money, this indicates the increasing possibility of a sustained bullish trend.

If you are a member, keep a lookout for the next Retail Sentiment analysis which will be released late Monday / early Tuesday.

The US Retail Sales turned out to be much better than expected, reporting 8.4% instead of 5.1%. Retail sales is a fundamental component of the economy. As consumers spend, it translates to revenue and flows upstream as salaries, wholesales purchase, production orders, and so on. This result likely capped some of the push pressure for the EUR/USD. If the USD continues to report stellar economic data and if the euro area economic climate leaves more to be desired, we may see a boost to downside pressure.

The Week Ahead

There are a number of 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.

The European Central Bank is due to release its policy statement and interest rate decision. Pay close attention as any dovish stance taken by the officials may significantly dampen the sentiment for the euro. The implied positioning of the central bank towards monetary policies may cause traders to take preemptive positions. The possibility of an increase in the interest rate or tightening policy may cause increased demand, while the possibility of a decrease or accommodative policy may cause the currency to be sold.

We also have numerous PMI data expected towards the end of the week. These may shed light on the recovery of the economies and give an indication of possible sentiment changes.

Do take note that the early week is mostly devoid of significant releases, so the price action may be irregular due to a lack of strong sentimental push.

 

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.

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.

USA Unemployment Claims
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.

EUR French Flash Services PMI
EUR French Flash Manufacturing PMI
EUR German Flash Manufacturing PMI
EUR German Flash Services PMI
EUR Flash Manufacturing PMI
EUR Flash Services PMI
USD Flash Manufacturing PMI
PMI or A 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 fewer business activities because of prudence.

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