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EUR/USD Weekly Forecast: US Fed Surprises

The week ended bearish, further moving the notion that a bearish trend may be here. Let us examine it further.

EURUSD Weekly Chart

Technical Analysis

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

It came after a failed attempt to breach 1.2.

We can see that the support of 1.19 is holding and significant. The week before last also encountered a block in the region.

We see the currency pair still within the confines of the immediate descending top.

Pay attention to the price action in the week ahead. If 1.19 fails, we will probably see a push for 1.18.

A bullish recovery will no doubt face the strong resistance of 1.2, followed by the middle bollinger band.

Sentiment Analysis

SP 500 Daily

Looking at the S&P 500 chart above, we can see that the S&P 500 declined for the week. It is also just slightly bullish on the monthly timescale.

The Cboe Volatility Index has risen to above 20 again. Being an indicator of volatility, this means that the equities market saw increased volatility.

We saw the USA Philly Fed Manufacturing Index report turn out much better than expected. It reported 51.8 instead of the expected 22.5. This is a survey of manufacturers and 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.

The US Federal Reserve made a surprise announcement on Friday regarding the Supplementary Leverage Ratio. Previously, a measure was made to provide temporary pandemic relief from the SLR. It is due to expire at the end of the month and the US Fed has confirmed it. This means that major US banks will be required to resume holding an additional amount of money against US Treasuries and central bank deposits for loss absorption purposes.

There are two sides to this. While this suggests that the central bank is confident about the recovery of the US economy, investors see this requirement as a form of monetary tightening. The additional money, held as a protection against loss, will be unavailable for investment. This likely gave the S&P 500 and by extension the currency markets bearish pressure.

Risk appetite was likely reduced as seen in the risen price of gold, despite some US dollars strength. This is clearly seen in the latest Premium Correlation Analysis. Members should log in immediately to see the full analysis.

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.

USA Fed Chair Powell Speech
USA Fed Chair Powell testimonial
EUR ECB President Lagarde Speech
Speeches and testimonials may reveal new insights into economic policies or contain a question and answer segment that at times goes into unscripted topics resulting in unexpected developments and volatility.

EUR French Flash Services PMI
EUR French Flash Manufacturing PMI
EUR German Flash Manufacturing PMI
EUR German Flash Services PMI
EUR Flash Manufacturing PMI
EUR Flash Services PMI
USA Flash Manufacturing 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 Final 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.

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.

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