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EUR/USD Weekly Forecast: Euro Spikes As US Dollar Struggles

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Latest Premium Analysis Update: Retail Sentiments Analysis 23 Nov 21 View Anlaysis

The week brought about renewed euro currency strength.

EURUSD Weekly Chart

Technical Analysis

In the EUR/USD weekly chart above, we see a spike of the currency pair.

It fell short of the strong sentiment and technical region of 1.22.

The week ahead will see the strong technical and sentiment region of 1.22 stand in opposition to any bullish ambition. The extended bullish target would be the upper bollinger band and 1.23 region. A return of a bearish climate will probably see 1.21 serve as an immediate resistance, followed by the middle bollinger band and 1.2.

Sentiment Analysis

SP 500 Daily Chart

Looking at the S&P 500 chart above, we see that equities have rallied towards the end of 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 below 17. As an indicator of volatility, this suggests that volatility has receded. We are warier of big changes in the index, but slight changes as such can provide good peripheral information.

Weak economic data plagued the US dollar this week. The USA ISM Manufacturing PMI reported lower than expected results. It came in at 60.7 instead of 65. As a survey of purchasing managers, it is important as their sentiment is a leading indicator of economic health.

The ADP Non-Farm Employment Change reported lower than expected results. 742K jobs were added instead of the forecasted 872K. Employment is a fundamental component of the economy as it leads to consumer spending and hence retail sales. ADP’s statistics are based on the payroll data of approximately 400,000 U.S. business clients.

It was followed by the USA ISM Services PMI which reported 62.7 instead of 64.2, add to the negative sentiment towards the US dollar.

In the week’s finale, the US Non-Farm Payroll came out much worse than expected. It reported 266K new jobs instead of the expected 990K, missing the target by more than 50%. In our Premium Analysis for the US NFP, we witness the knee-jerk reaction by the market against the US Dollar. This confirms the negativity towards the USD.

If you are clueless as to why did the US Dollar dropped while the S&P 500 climbed, allow me to explain. Due to the terrible week of disappointing economic data for the US, many investors and analysts are of the opinion that the US Federal Reserve will have no choice but to hold on to accommodative policies. This usually produces two effects.

  • The US Dollar weakens due to the apprehension towards excess liquidity and supply.
  • Equities market climb in anticipation of cheaper money.

I’ll like to take this opportunity to stress to our readers again that forex success goes beyond looking at a single chart. It is vital to approach it from a holistic point of view. The interlinked dynamics are crucial.

The upcoming Retail Sentiment analysis for members which will be due for release on late Monday / early Tuesday will be of much interest to me. 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. I await to see if the negativity towards the US dollar has shifted the bottom line of the retail sentiment.

In our previous review, the Retail Sentiment Analysis gave us mixed signals, which in hindsight led to this return of bullish pressure. As we know sentiment can be very fickle, I hope to see if the upcoming release yields any clues as to possible next directions.

*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.*

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.

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

EUR EU Economic Forecasts

Economic forecasts are important and monitored by traders and analysts. The idea is to obtain insights into possible future economic policies and conditions. Volatility may increase, especially when the actual data is not as per expectations.

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
USA 30-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.

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 Core Retail Sales
USA Retail Sales
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.

USA Industrial Production
Industrial Orders serve as a leading indicator of economic activity. If orders are high, production will be increased. This flows downstream leading to employment, revenue, and more.

USA Prelim 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.

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