EURUSD, GBPUSD, USDJPY
Weekly Forex Analysis
(January 20 - January 24, 2020)
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US Dollar Fundamental Outlook – Strong Data Propels USD Higher; Positive Momentum Likely To Persist Into This Week
Strong consumer spending in the month of December as the retails sales report showed last week and a rebound of manufacturing activity in the Philadelphia region as shown by the Philly Fed manufacturing index, propelled the Dollar higher in the past week. The other data, such as CPI inflation and housing, were also roughly within expectations, so the overall tone of US data last week
was positive - therefore, supporting the greenback higher.
Aside from the official signing of the phase 1 trade deal between the US and China, there were other notable developments on this front last week. First, the US Treasury announced that it removed China from the list of currency manipulators in its currency report, and second, Switzerland was added on this watchlist of currency manipulators. This could mean that Trump will be turning his attention to Europe’s trade practices now that a longer-lasting truce with China has been agreed. Nonetheless,
for an escalation on this front, they will need to involve the Eurozone, either via placing it on the currency manipulators list and/or imposing tariffs.
Turning our attention to this week, Monday is a holiday in the US for Martin Luther King Day, while for the rest of the week, no tier 1 market-moving US data is scheduled on the calendar. So, during this week, the US Dollar will likely trade on general risk sentiment and developments in other currencies. Furthermore, the positive tone from last week still abides and is likely to be USD supportive for this week too.
Euro Fundamental Outlook – ECB Meeting & PMI Surveys To Make Or Break EUR
It ought to be a big week for the Euro currency with an ECB meeting, and the closely watched manufacturing and services PMI reports scheduled on the calendar.
This will be the second ECB meeting with Lagarde as President, and while no changes in policy are expected, the focus will be on the ECB’s official announcement of a major strategic review, which Lagarde pre-announced in December. Traders will particularly watch for any mention or plan for a review of the ECB’s inflation goal as this can have a huge impact on the ECB’s monetary policy in the future if they decide to change the inflation goal after the
strategic review is complete (expected at the end of this year).
The German ZEW economic sentiment index is scheduled for Tuesday, and the latest set of manufacturing and services PMI survey reports (the German, French, and overall Eurozone pieces being the mainly watched) will be published on Friday. The economy remains weak and these reports are expected to widely confirm that notion. However, the impact on the Euro will be in the details, and deviations either to the positive or negative side are likely to affect
the single currency accordingly. Weaker PMIs than expectations will likely extend the Euro bearish trend, while stronger than expectations number may help to fuel the recovery further and may even help it to break some technical levels.
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EURUSD Technical Outlook:
Last week’s candle suggests further bearish price action is in store for the EURUSD pair. The candlestick formation is bearish, and additionally, it appears at the resistance trendline of the roughly 18-month old downtrend.
Also, the weekly chart suggests there is a 300 pips “free room” to the downside for EURUSD now. If this gap is filled the pair can reach the lower end of the downtrend channel toward the 1.08 area and lower. The focus in the near term is on the 1.11 level, which is now support that once broken, could potentially accelerate the move down.
To the upside, resistance is pinned at the 1.12 area where the big resistance trendline stands together with several recent highs. The technical outlook for EURUSD will remain bearish for as long as the price trades below this resistance trendline and within the downtrend channel.
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