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EUR/USD Weekly Forecast: US Dollar Strength Continues As Euro Zone Remains Open to Easing

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The week ended on a bearish note. On a technical basis, there is significance to the closing.

EURUSD Weekly Forecast

Technical Analysis

In the EUR/USD weekly chart above, we see the currency pair end the week bearish.

It is now below 1.18.

This is an important development because the longer the currency pair remains below 1.18, the less technical incentive to hold on to a long position remains.

We need to monitor the lower bollinger band closely as it is now the immediate support for the price action. We need to see a clear breach before the EUR/USD heads towards the 1.16 region.

A return of bullish recovery will probably face resistance at the 1.18 region, followed by 1.1880.

Sentiment Analysis

SP 500 Daily Chart

Looking at the S&P 500 chart above, we can see that the S&P 500 is now above 4000. This suggests a risk-seeking climate in the market. The price of gold is also falling too. This suggests a low level of apprehension.

The Cboe Volatility Index has dropped to 17.33 showing that volatility continues to recede.

Many analysts believe that the proposal of US President Joe Biden’s “once-in-a-generation” investment program fuels the latest optimism in the US economy. Having said so, one has to remember that the plan needs to pass congress. Republicans have expressed strong opposition. If the program fails to materialize, sentiment may reverse quickly.

The US Non-Farm Payroll turned out to be much better than expected, reporting the addition of 916k jobs instead of 652k. That is 40% higher than forecasted. Employment is a fundamental component of the economy as it leads to consumer spending and hence retail sales.

In our US Non-Farm Payroll Analysis, it clearly shows the impact of this US NFP on the US dollar. The Majors, US Dollar Index, Brent Oil, and Gold Analysis also continues to show a trend in favor of the US dollar too. These indications are vital as economic climate affects price action. Members should log in immediately to view the latest Premium Analysis for the full picture.

Across the Atlantic, the European Central Bank continues to show no let-up in its willingness to provide accommodative support for the economy. Media reported that President Christine Lagarde of the ECB said the market “can test us as much as they want.” Quantitative easing leads to an increase in the currency’s supply. This creates a downside pressure on the value as supply floods the market. As investors compare, they typically choose the currency with the brightest prospects in terms of value.

The Week Ahead

There are a few 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.

If the US continues to report better than expected economic data, it will probably weigh down on the already battered Euro Zone. This is especially so as the week ahead is light on Euro Zone economic releases.

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 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 Meeting Minutes
Monetary policy meeting minutes 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.

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.

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