EUR/USD: Weekly Forecast 27th August – 2nd September
The EUR/USD went into this weekend below the 1.07950 mark and many Forex analysts have written about the weakness of the EUR as if it is trading alone on an island. However, the EUR/USD is trading in a correlated manner to a strong USD and this can be seen across Forex markets. While German economic data has certainly been weak and this may be used as a sounding board to ‘explain’ why the EUR/USD is losing value, this sentiment should be questioned.
Since touching a high of nearly 1.12750 on the 18th of July the EUR/USD has essentially slid lower and made support levels look vulnerable. The fall in value of the EUR/USD has caused certain factions to point to economic problems in Europe regarding high inflation, recessionary pressures, and a lack of sound monetary policy from the European Central Bank. But the fact of the matter is that almost all other major global currencies are performing badly against a stronger USD.
EUR/USD Technical Support Levels Wavering as Nervous Behavioral Sentiment Grows
Traders should look to U.S short-term Treasuries as a culprit and as the major reason, the EUR/USD is sinking in value. Financial institutions are nervous and they are showing signs of being risk-adverse as they seek yields that are guaranteed. U.S. Treasuries from 2 to 5 years long provide solid financial returns without much risk. The purchase of U.S Treasuries must be done in USD and this is sparking the purchase of USD globally from assorted financial houses looking to park money. The 1.08000 level in the EUR/USD was tested on Wednesday, Thursday, and Friday of last week.
Yes, the EUR/USD looks oversold, but day traders should consider the heightened nervousness amongst financial institutions and their need to ensure profitable yields for their clients. The EUR/USD has not fallen on poor economic numbers from Europe in my opinion, the Forex pair has simply correlated to a stronger USD and the damage the ‘greenback’ has done against most major currencies the past month and a half as financial institutions have looked for risk-averse places to park their cash – like U.S Treasury bonds.
The 1.08000 Level is now a Focal Point for the EUR/USD for Day Traders
- As the week begins many traders will look at the 1.08000 level as an important psychological mark.
- If the EUR/USD remains under this ratio early this week, this type of trading could be interpreted as a negative signal.
- Bullish traders may be attracted to the lower EUR/USD values, but they should be extremely careful.
- The ability of the EUR/USD to move lower has brought the currency pair to lows not seen since the second week of June. However, it should be noted the EUR/USD was trading near 1.06700 on the 7th of June.
EUR/USD Weekly Outlook:
The speculative price range for EUR/USD is 1.07050 to 1.08770
The EUR/USD did produce rapid price momentum lower on Thursday until Friday of this past week. Perhaps that is a sign that the market action was overdone and that nervous market sentiment will start to calm down which could produce some upward momentum for the EUR/USD. However, timing the start of increased risk appetite to reignite in Forex and the EUR/USD remains problematic. Traders need to remember the Non-Farm Employment Change numbers will come from the U.S. this Friday. But speculators also need to consider U.S. data has not been particularly good the past few weeks, much like Europe.
Day traders pursuing the EUR/USD should be careful. The past month has delivered strong downward momentum and while it might be attractive to dream about catching the next big rush upward, this consideration needs to be treated with solid risk-taking tactics. While it may be enticing to think the EUR/USD is going to march higher sooner rather than later, support levels have continuously been made vulnerable over the past month. The 1.07800 support level should be watched early this week, if it holds this may be a sign buying momentum could build, but nervous sentiment in financial institutions makes this a dangerous short-term perspective. The price movement in the EUR/USD has been volatile and perhaps the coming days will continue to deliver choppy values.
GBP/USD: Weekly Forecast 27th August – 2nd September
The GBP/USD will open for trading early Monday near the 1.25770 this after the currency pair challenged the 1.28000 level upwards on Tuesday of last week. Day traders were reminded once again in an impolite manner by Forex markets, that in order to survive and profit as a currency speculator tough skin and strong emotional fortitude are needed. The technical perceptions a trader has regarding support and resistance levels are features that often prove difficult to use favorably when trying to make short-term decisions unless some dose of behavioral sentiment is being considered.
After touching the 1.28000 level on Tuesday and potentially sparking the interest of bullish retail traders, who may have perceived this higher value as a signal the GBP/USD was finally going to create stronger upward momentum, the currency pair essentially began to dive lower. Traders looking for correlations can certainly see the USD has been strong against most major currencies the past month, but finding exact reasons as to why the USD has emerged again with so much strength may be confusing.
Short-Term U.S Treasuries are a Culprit for GBP/USD Bullish Traders
U.S. economic data like its counterparts globally, has been lackluster in many respects. The U.S Federal Reserve within the confines of its Jackson Hole Symposium late last week reaffirmed it will not raise interest rates in the mid-term most likely. However, the Federal Reserve via Jerome Powell speaking to a crowd of onlookers did say, interest rates would remain high for the foreseeable future. The U.S. Fed Chairman also said the U.S. central bank reserves the ability to respond with higher interest rates if needed.
But wait a second, I just wrote U.S. economic data has been lackluster in the above paragraph. However, the Federal Reserve apparently via its rhetoric is warning major financial institutions and corporations they are paying attention to a U.S. economy they still fear could spark a surprise regarding potential inflation. In other words, by saying interest rates will remain high there is little chance the Fed will suddenly become dovish, the U.S. central bank has created a monster regarding the purchasing of short-term 2 to 5-year U.S. Treasuries via financial institutions who are looking for guaranteed yields. To buy U.S. Treasuries you need to use USD, especially when buying them from countries outside of the States.
Traders of the GBP/USD Should Look at Charts of U.S Treasures from the Past Five Days
- The direction of the GBP/USD has moved in an inverse (opposite) direction to short-term U.S Treasuries of 2 to 5-year lengths over the past five days of trading.
- Forex markets including the GBP/USD are hurting speculators who are betting against the USD in the short term. The fall of the GBP/USD late last week correlates to the higher yields of U.S Treasuries.
- Nervous behavioral sentiment remains strong and has created volatile conditions for the GBP/USD.
GBP/USD Weekly Outlook:
The speculative price range for GBP/USD is 1.24920 to 1.27260
Falling below the 1.26000 level for the GBP/USD late last week may have shocked many speculators. The currency pair is now trading at lows it has not seen since the second week of June, when the GBP/USD was starting to recapture some of its buying power, and eventually touched the 1.31450 level on the 13th of July. The volatility of the GBP/USD in the past two and half months of trading has been startling even to experienced Forex traders.
Nervous sentiment remains high and economic data this week will come from the U.S. which will finish with jobs numbers this coming Friday. However, as the week begins tomorrow, some traders are likely to remain confident the GBP/USD is now vastly oversold. The problem with chasing upward momentum is that it can become very expensive if proper risk management is not being used. This week of trading in the GBP/USD will likely mirror broad market conditions and while speculators may not believe the GBP/USD can go much lower, they should remember the currency pair has done so in the past. Short-term considerations should be kept with nearby targets and quick-hitting perspectives this coming week in the GBP/USD.
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