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.
Fundamental analysis and market sentiment
I wrote in my previous article on the 11e September that the best trades of the week were probably:
- Short of the EUR/USD currency pair, but only from reversals at key resistance. There was a bearish reversal at $1.0195 that could have yielded around 130 pips of profit at the weekly close.
- Long from the USD/JPY currency pair, but only from reversals at key support. None of my key support levels were hit last week.
This produced an overall win.
The news is dominated by US CPI (inflation) data worse than expected last week, which produced a strengthening in risk aversion sentiment and saw a flow into the US dollar. The data suggests that inflationary pressures remain stronger and broader than expected, which should increase the likelihood of the Fed raising rates this week by 1.00%, with a best-case scenario of 0.75% effectively given. Goldman Sachs has lowered its US GDP growth forecast for the United States in 2023 from 1.5% to 1.1%. The 2-year US Treasury yield rose sharply from the 3.50% zone to a new multi-year above 3.90%, while the US dollar index also posted a high weekly close at long term. Stock markets fell sharply, the key S&P 500 index ending the week down 5.15% while almost all other major global indices also fell, notably the Chinese HSI which is on course to fall to new long-term lows.
In terms of market moves, the most dramatic beyond the stock market was seen in the commodities sector, with almost all commodities ending the week lower. Gold stood out as it closed well below $1700 at an almost 2.5 year low. In the Forex market, despite the strength of the US dollar, the Japanese yen refused to decline further, likely due to signals sent by the Bank of Japan and other Japanese policymakers that the decline in the yen had gone far enough to their taste. The main moves in Forex during the week were in the flows of commodity currencies (the Canadian, Australian and New Zealand dollars) into the US dollar, although GBP/USD currency pair also broke down to a fresh 37-year low below $1.14.
Details of important economic data releases from the past week can be summarized as follows:
- US CPI – rose 0.1% month-on-month as a 0.1% decline was expected.
- UK CPI – came in very slightly below expectations, at an annualized rate of 9.9% versus 10.0% expected.
- UK GDP – came in lower than expected, rising 0.2% month-on-month compared to 0.3% expected.
- US PPI – month over month down 0.1%, exactly as expected.
- US Retail Sales – This rose 0.3% month-on-month, when a 0.1% decline was expected.
- New Zealand GDP – rose 1.7% in the quarter, higher than the 1.0% that had been forecast.
- Australian Unemployment – is slightly worse than expected, with the unemployment rate increasing slightly from 3.4% to 3.5%.
- US Empire State Manufacturing Index
- UoM Preliminary Data on US Consumer Sentiment
The Forex market saw relative strength in the US Dollar last week. The weakest currencies were NZD, AUD, CAD and GBP.
Global coronavirus infection rates fell last week for the ninth week in a row. The only significant increases in new confirmed coronavirus cases are currently occurring in Russia and Taiwan.
The week ahead: 19e September – 23rd September 2022
The coming week in the markets is expected to see a significantly higher level of volatility than last week, with several important central bank releases including the most important event on the Forex calendar, the US Federal Reserve’s monetary policy decision. . The releases due are, in likely order of importance:
- Federal funds rate, FOMC statement and economic projections.
- Bank of Japan Monetary Policy Statement and Policy Rate
- Official Bank Rate and Summary of Bank of England Monetary Policy
- Assessment of the SNB’s key interest rate and monetary policy
- RBA Monetary Policy Meeting Minutes
- Canadian CPI (Inflation) Data
- US Fed Chairman Powell will deliver a short speech
- Manufacturing and services PMI data for the US, UK, Germany and France
- The RBNZ Governor will deliver a short speech
It’s a public holiday this Monday 19e September in Japan and the UK, and on Friday 23rd September in Japan.
US dollar index
The weekly prize chart below shows the US dollar index printed a bullish candlestick that closed, in line with the long term orient oneselfwhat is bullish.
The weekly closing price was the highest in many years, which is a bullish sign. However, it should be noted that this figure is only slightly higher than the close two weeks ago., and that last week’s high did not cross above last week’s high. These are signs that bulls may need to be cautious.
The reason for this moderate bullish trend is mainly that the two main counterparts of the dollar, the Japanese yen and the euro, are holding up relatively well, although the dollar is rising strongly against other currencies. Nonetheless, the dollar received a major boost thanks to stronger than expected US CPI data released last week.
We seem to have a new level of support formed at last week’s low near or at 108.00which adds to the bullish case.
It remains a good idea to look for long trades in the US Dollar over the coming week. This is a very powerful and long-term uptrend in the most important currency in the Forex market.
Last week saw Gold print a bearish outdoor bar which saw the precious metal hit its lowest price since the April 2020 coronavirus panic. The candlestick has a significant lower wick, so bears need to be at least a little cautious here.
I don’t like to trade gold short, because historically it has not trended down in a regular and predictable way. However, gold is strongly positively correlated with the US stock market, and we see equities and other commodities falling as risk aversion sentiment sends strong flows of money into the US dollar. There is no inflation safe haven in the market right now, and the solution for investors seems to be to speculate that the US dollar will continue to strengthen.despite its high inflation rate.
The NASDAQ 100 The tech index fell sharply last week, setting a bearish outer bar, as nearly all major global stock indices fell. Global equities took a serious beating due to the persistently high inflation data we are seeing in the US, leading to expectations for the Fed to hike rates by 1% this week, which would complicate the life of large companies and consumers.
I don’t like to trade stocks short because they are prone to sudden and strong bullish reversals, but there may be continued opportunities here on the short side if we continue to see strong bearish momentum as markets open on Monday.
Last week, the GBP/USD currency pair printed a bearish outer bar that saw the currency pair hit its lowest price since 1985, a 37-year high.
This is a very bearish sign, but bears should note that not only does the candlestick have a significant lower wick, but the low has rejected the key support level. and the confluence of the round numbers at $1.1400.
The US dollar is strong but not progressing against the euro and the Japanese yen. The British pound is plagued by extremely high inflation of almost 10% and a weakening economy, with the Bank of England predicting a 5 quarter recession from the end of this year. Therefore, there are good fundamental reasons to see a good case for a short trade.
I wouldn’t take any short trades until the price breaks below last week’s low of $1.1350 because then it would be trading in the ‘blue sky’ that hasn’t been seen in decades. . and would have no technical limitations opposing a further sharp decline.
Last week saw the NZD/USD currency pair print a bearish outer bar that saw the currency pair hit its lowest price since the coronavirus panic of May 2020. The candlestick has a significant lower wick, so bears need to be at least a little cautious here.
In the past week, the US dollar has strengthened notably against the British pound and the three commodity currencies, the latter including the NZD, and the NZD has fallen more firmly than the Australian or Canadian dollars. Therefore, I think trading this currency pair short is probably a great way to exploit the current risk aversion sentiment prevailing in the market. However, it is important to wait and see how the week ahead opens up and what happens in Monday’s Asian session when this pair is usually quite active.
Interestingly, the NZD’s relatively high interest rate is not saving it from falling to new long-term lows.
I would not take short positions until price is below last week’s low at 0.5940.
I see the best opportunity in financial markets this week as likely to be short the GBP/USD currency pair below $1.1350.
Ready to trade our weekly Forex forecast? Here are the best Forex brokers to choose from.