The EUR/USD had a bullish week, demonstrating again that bollinger bands may function as firm supports and resistances.
Technical Analysis
In the EUR/USD weekly chart above, we see the currency pair failed in its attempt to breach the lower bollinger band.
It had since risen to 1.19
We saw significant price action in this region back in September 2020.
If bearish pressure continues to fight the rise, we may see a period of consolidation before the EUR/USD drops. This will result in a head and shoulders technical pattern.
For the bullish recovery to continue, it now faces the region of 1.19 itself, followed by the strong technical and sentiment region of 1.2.
Sentiment Analysis
Looking at the S&P 500 chart above, we can see that the S&P 500 is now above 4100. 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 has fallen to below 17. As an indicator of volatility, this means that the market is now less volatile.
In view of this, the prevailing market theme continues to be the extent of accommodative measures by the respective central banks and the recovery progress of the economies. Investors gravitate towards the economy with better prospects.
The past week saw increased US dollar weakness because of the dovish stance presented by the US Federal Reserve. The President of the Chicago branch, Charles Evans, was quoted saying “It is too early to start talking about talking about a QE taper.” Investors usually prefer a currency with higher interest rates, and this reduces the demand for the US dollar. The USA FOMC Meeting Minutes reaffirmed the central bank’s dedication to accommodative measures in order to support the economy.
We saw the US Unemployment Claims turn out to be worse than expected. It reported 744K instead of 682K. 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. If the figures continue to disappoint, we may see sentiment become increasingly negative. Pay close attention to this development.
I am aware of reports made that the liquidity of the euro currency in the euro area has doubled because of the ongoing support provided by the European Central Bank. Andrea Appeddu, a rates strategist at Citigroup, expects this to push the rate that banks can theoretically borrow from each other down to a record minus 0.58 percent. This likely adds bearish pressure to the euro currency as supply continues to be abundant.
The Week Ahead
There are many 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.
Any development that dampens the prospects of the euro area may tip the price action back towards a bearish trend.
USA Fed Chair Powell Speech
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.
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 CPI
USA Core CPI
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 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 Philly Fed Manufacturing Index
This survey of manufacturers is important as the sentiment of businesses is a leading indicator of economic health. A healthy sentiment suggests that an economy is moving along well and with the activities of the businesses, downstream benefits will happen such as employment and investment.
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 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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EUR/USD Weekly Forecast: US Dollar weakens in correction
EUR/USD Weekly Forecast: US Dollar weakens in correction
EUR/USD Weekly Forecast: US Dollar weakens in correction
EUR/USD Weekly Forecast: US Dollar weakens in correction
EUR/USD Weekly Forecast: US Dollar weakens in correction
EUR/USD Weekly Forecast: US Dollar weakens in correction