Forex Forecast: Pairs in Brief
The difference between success and failure in Forex/CFD trading is very likely to depend primarily on which assets you choose to trade each week and in which directionnot on the exact methods you might use to determine trade entries and exits.
So, as you start the week, it’s a good idea to get an overview of what’s developing in the market as a whole, and how those developments are affected by macro fundamentals, technical factors and sentiment. of the market. Read on to get my weekly analysis below.
There are still a few strong tendencies in the markets and following them can help you put the odds in your favor.
Fundamental analysis and market sentiment
I wrote in my previous post last week that the best trades of the week were probably:
- EUR/USD short after a daily close (New York) below $1.0378. There was no daily close below $1.0378.
- Short of BTC/USD after a daily close (New York) below $28,800. The price closed Monday at $28,681 but ended the week up 2.33% from there.
The news remains dominated by the Russian invasion of Ukraine, which is well into its third month, but appears to be stalled by an effective Ukrainian defense, armed by NATO, financed by the United States alone with over $40 billion to date. Russian forces withdrew from the northern part of the enterprise, concentrating on an offensive aimed at fully capturing the eastern and southern coastal regions of Ukraine. The war initially caused fairly strong movements in certain markets, in particular in certain agricultural products such as wheat and maize, but now appears to have little effect beyond weighing on global equity markets and keeping the price of wheat relatively high. Of course, other fundamental factors are weighing on stock markets, like the specter of stagflation and rising interest rates.
There is a prevailing sense of risk in the markets, but it is mostly expressed in falling stock markets and bearish action in cryptocurrencies, with the market currently treating them as the top “risk” assets. This is motivated by several fundamental and sentimental factors:
- The S&P 500 index traded more than 20% off its high this week for the first time in two years, signaling the start of an official bear market in US equities by any measure.
- Inflation remains a major concernwith Canadian CPI (inflation) data coming in slightly higher than expected last week, while UK CPI data came in slightly below expectations, leading to the week ending on a slightly weaker note. more upbeat after US CPI data released last week came in higher than expected two weeks ago.
- New data shows that private capital in the United States, which had grown exponentially in value over the past few years, is now shrinking rapidly.
- Many analysts view the current long-term strength of the US dollar as a drag on the global economy, as it causes capital outflows from emerging markets and some developed markets.
Stock markets are generally weak, but it should be noted that the S&P 500 index was bought quickly both times it fell near or below its 20% decline level at 3,856. This suggests that long-term buyers are intervening in this bear market technical area. Buying US stock market declines has been a great strategy in recent years, but there is definitely a strong downward trend in US equities that is supported by fundamentals and monetary policy.
Cryptocurrencies continue to look very weak, but note that Bitcoin buyers are stepping in when Bitcoin threatens to drop below $28,607. It must be said that the price action is weak and there remains a serious and immediate danger of sharp falls in major cryptocurrencies. Short cryptocurrency trades will continue to attract speculators in this environment, while margin calls will force retail liquidations.
The Forex market is dominated by a selloff in the US Dollar that doesn’t quite fit the risk-on/risk-off paradigm. Although the safe-haven Japanese yen gained against the greenback last week, nearly every other currency did the same. The main factor driving the Forex market now is the weakness of the US dollar.
We increasingly hope that the coronavirus pandemic may be almost over, although coronavirus infection rates around the world rose last week for the first time in nine weeks. The only significant increases in new confirmed coronavirus cases are currently occurring in Australia, Chile, the United States, Panama, Portugal, Trinidad and Taiwan.
The week ahead: 23rd – 27and May 2022
The coming week in the markets should be just as or more volatile than last week. A few outings of great importance are planned. These are, in likely order of importance:
Preliminary US GDP data – this will be watched closely to see if the United States is falling into recession. US GDP contracted 1.4% last quarter and is expected to decline further in the current release. However, most analysts believe that the United States will avoid a recession in 2022, but if the data starts to show that it won’t, it could hit equity markets hard.
US FOMC Meeting Minutes – this will be analyzed for more clues like the Fed’s thinking on the pace of future rate hikes.
US Core PCE Price Index Data – this will be analyzed for clues as to whether the US CPI has peaked.
RBNZ Monetary Policy Statement and Official Exchange Rate – the Reserve Bank of New Zealand is expected to raise its interest rate from 0.50% to 2.00%, which would be by far the highest rate applied to all major currencies.
German Services Flash Data and Manufacturing PMI.
US dollar index
The weekly prize chart below shows the US dollar index fell last week, against the long term uptrend, print a bearish engulfing bar which closed not far from the bottom of its range. This reversal is technically not very noticeable, apart from its location in the chart confluence with a long-term high, with reinforced the bearish case. In another sense, it is very remarkable, as the dollar had risen for the past eight consecutive weeks. This downward move is not a complete surprise, as it was clear that the pace of bullish momentum was waning.
Another notable feature of the Forex market this week has been the massive selling off of the greenback against all other currencies, showing the market is currently driven by the weakness of the US dollar.
Despite the long-term uptrend, it will likely be a mistake to expect the Dollar to rise over the coming week.
US dollar index weekly chart
S&P 500 Index
The world’s largest stock market index, the S&P 500 Index, fell again last week for the seventh week in a row, and finally hit a 20% decline from its all-time high, signaling a formal bear market in this index by all accounts. There is a long-term downtrendwhich displays a fairly healthy dynamic. Last week’s closing price was the lowest in more than 14 months.
These are bearish signs and there are good reasons to short major equity indices now, especially this one, which is the largest index in the world. However, there are bullish signs to be aware of, such as the strong buying seen whenever the price has approached or dropped below the 20% low. level at 3,856. On its last attempt, the price broke well below this level, but rebounded very strongly and quickly to end the week above the round figure at 3,900. This suggests heavy buying, and if the buyers continue to intervene at these levels and we continue to see days close above 3,900, the less likely another major move lower will become.
Short trading major stock indices can be tricky, but experienced traders might want to look for short trades here.
S&P 500 weekly chart
Bitcoin fell again last week in line with its long-term downtrend, for the eighth consecutive week, as did the S&P 500 index. The week ended with a close at a 17-month low and the impression of a downtrend inside bar which closed very near the bottom of its range.
These are bearish signs, and there has been panic in the crypto sector due to the collapse of some stablecoins such as Luna/Terra. This helps the bearish case.
Importantly, however, the price remains very reluctant to make a daily close below the very pivotal support level at $28,607. – the price somehow continues to refuse to spend very long below this level, although the price has been trading significantly lower. Over the past few days, this key support level has continued to survive testing from above.
Bitcoin is on the brink of an abyss, but we could see a long-term bullish bounce in this area. A key indicator will likely be whether we get a daily close below this pivot point at $28,607.
I wrote something similar about Bitcoin last week, except I thought the key support level to use was a bit higher at $28,800. I am not discouraged by this as the price action continues to look bearish and heavy, and I continue to believe that we are more likely to see significant downward movement in price before seeing a strong bullish bounce.
I will be happy to take a short position once we have a daily close below this level. However, I note that the $28,607 survives for the near future, it could become a long-term low and trigger a new advance.
BTC/USD weekly chart
I see the best opportunities in financial markets this week as likely to be:
- Below the S&P 500 after a daily close (New York) below 3,900.
- Short of BTC/USD after a daily close (New York) below $28,606.