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EUR/USD Weekly Forecast: Euro Slides on Disappointing German Economic Data

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An interesting week it was for the EUR/USD. The currency pair fought a good fight to test 1.21 and pushed beyond.

EURUSD Weekly Forecast

Technical Analysis

In the EUR/USD weekly chart above, we see a failed attempt to test 1.22.

The subsequent price action saw it dipped towards 1.2, breaching the middle bollinger band.

If you drop to the hourly timeframe, you will see that the dip happened towards the end of the week. The bearish momentum was rather strong, as it pretty much punched through the supports.

The week ahead will see the strong technical and sentiment region of 1.2 stand in opposition to any bearish move. A return of a bullish climate will likely see the middle bollinger serve as an immediate resistance, followed by 1.21 and 1.22.

Sentiment Analysis

SP 500 Daily Chart

Looking at the S&P 500 chart above, we can see that equities are somewhat flat for the week. Nothing indicates the end of risk-seeking appetite and hence we will probably see minimal upside contribution to the USD from traders seeking safer assets.

The Cboe Volatility Index is now above 18. As an indicator of volatility, this suggests that volatility increased. We are warier of big changes in the index, but slight changes as such can provide good peripheral information.

The German ifo Business Climate reported lower than expected results. With Germany being a key economy of the euro area, this disappointment likely affected euro sentiment. Investors are worried about the possibility of worsening pandemic impact.

Across the Atlantic, the US FOMC event gave no new indication of any possible tightening of monetary policy.

The USA CB Consumer Confidence reported better than expected results. Consumer surveys are influential as the sentiment of consumers is a leading indicator of economic health. The USA Advance GDP Price Index turned out much better than expected too. It reported almost double at 4.1% instead of 2.6%. As a measurement of inflation, the increase may add pressure for the central bank to consider a tightening monetary stance to curb the rise. Investors usually react positively to this because of the possibility of a higher interest rate.

Towards the end of the week, the German Prelim GDP was reported to be lower than expected. It came in at -1.7% instead of -1.5%. As a key member of the euro area economy, we cannot ignore the impact on sentiment. This is coupled with the worse than expected German ifo Business Climate which results in a significant dent in the sentiment towards the euro currency. We see the EUR/USD sliding on the back of this development.

I am particularly interested to see our latest Retail Sentiment analysis for members which will be due for release on late Monday / early Tuesday. As an unconventional source of insight, mainly on the contrarian basis towards the sentiment of retail forex traders, it may help us get a better pulse on the markets.

In our previous review, the Retail Sentiment Analysis displayed a clear inverse correlation with the EUR/USD. Basically, when retail traders were furiously buying the EUR/USD, the trend was relentlessly bearish.

*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. It is hence crucial to pay attention to the economic events in the upcoming week.

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 Non-Farm Payrolls is due this week and it is a major barometer of the US economy. Expect significant volatility if anything unexpected happens. The forecast is an addition of 975k jobs. Investors and analysts will closely monitor this event.

Find below a number of the economic events (not in chronological order).

EUR ECB President Lagarde Speech
USA Fed Chair Powell 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.

USA ISM Manufacturing PMI
USA ISM Services PMI
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.

USA ADP Non-Farm Employment Change
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.
ADP’s statistics are based on the payroll data of approximately 400,000 U.S. business clients. Therefore, it is viewed by many as a possible early indication of the US Non-Farm Payroll result.

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 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 Average Hourly Earnings
Consumer earnings is important because of its upstream impact. With more earnings comes possibly increased consumer spending. This translates to revenues, leading to employment and business expansion.

USA Non-Farm Employment Change
USA Unemployment Rate
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.
The US Non-Farm Payroll is basically data released by the U.S. Bureau of Labor Statistics on a monthly basis that represents the total number of employed US workers, excluding the following employees:

– general government employees
– private household employees
– employees of nonprofit organizations which provide assistance to individuals
– farm employees

 

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