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EUR/USD Weekly Forecast: Euro punches through 1.2.

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Several readers asked me why is the euro gaining?

From a sentiment point of view, it is not unexpected. That is the reason why we always have to pay attention to all factors concerning the markets, instead of just trading a single chart.

EURUSD Weekly Chart

Technical Analysis

In the EUR/USD weekly chart above, we see the currency pair testing the region of 1.21.

It broke through the middle bollinger band and is now above the upper trend line of the previous bearish trend.

This is a bullish indication, and we must not take this lightly. The upcoming week is crucial as a continuation of bullish price action further solidifies the change of trend.

If a bearish recovery is attempted, I see possible support at the middle bollinger band and the strong support and resistance region of 1.2.

Sentiment Analysis

Looking at the S&P 500 chart above, we can see that equities are somewhat flat. There was some pull back by the tech stocks. Having said so, nothing indicates the end of risk-seeking appetite. So I believe we will probably see minimal upside contribution to the USD from traders seeking safer assets.

The Cboe Volatility Index is back above 17. As an indicator of volatility, this suggests that some volatility remains. We are more wary of big changes in the index, but slight changes as such can provide good peripheral information.

Remember, I said in the previous weekly forecast that the situation was friendly towards any attempt by the euro currency to climb? This was indeed the case. Congratulations to the readers who made a good call!

We have to understand that the market had already priced in the covid challenges for the euro area. Furthermore, the clue is in our 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.

As the Euro area continues to progress towards a more normal economic situation with the lifting of lockdowns etc, more bullish pressure will be on the euro.

*If you are a member, keep a lookout for the next Retail Sentiment analysis, which will be released late Monday / early Tuesday. If you are not, make use of our 10 days risk-free money-back guarantee. Membership is as low as $0.20 per day.*

With both sides of the Atlantic holding on to accommodative monetary policies, it is down to the prospects of the economies that will sway sentiment. This then drives short-term price action. Last week, the European PMIs were mostly better than expected. 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 fewer business activities because of prudence.

If this week’s economic releases show a similar trend of an upbeat euro area, we may see the possibility of a higher euro.

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 US Federal Reserve 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 USD. 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.

 

EUR ECB President Lagarde Speech
Speeches may reveal new insights into economic policies or contain a question and answer segment that at times go into unscripted topics resulting in unexpected developments and volatility.

EUR German ifo Business Climate
Business climate surveys are influential as the sentiment of businesses 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 CB Consumer Confidence
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.

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 FOMC Statement
Monetary policy statements 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. Significant volatility may be generated if there are unexpected revelations.

USA Federal Funds Rate
A high interest usually generates demand while a low interest may result in the 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.

USA FOMC Press Conference
Press conferences may go into unscripted territory during the Question and Answer segment and hence may spur unexpected developments and volatility.

USA Advance GDP Price Index
The GDP Price Index is important because it is a measurement 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 Advance GDP
EUR German Prelim GDP
Gross domestic product is a measure of the monetary market value of all the goods and services produced. It is an overall measure of economic activity and health and thus wields influence on the home currency.

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.

USA Pending Home Sales
The purchase of a house results in economic activities. Renovation jobs will be created for construction workers, the various sub contractors, and services associated with new ownership such as power, water, furniture, and so on.

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