EURUSD, GBPUSD, USDJPY
Weekly Forex Analysis
(January 27 - January 31, 2020)
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US Dollar Fundamental Outlook – Extending The Bullish Move; USD Remains In Sweet Spot Ahead Of Fed Meeting & Q4 GDP Print
As we expected in our last week’s analysis, the US Dollar extended the move higher and strengthened moderately for another week. Part of the reason for this certainly has to do with the outbreak of the Coronavirus in China, which spooked equity
markets and risk aversion hurt risky assets.
The week ahead features more exciting events than the previous one. Out of the most important events, the Fed meets on Wednesday, and the US will report the advance Q4 GDP release on Thursday. Though, much like the ECB, the Fed meeting may pan out as a non-event causing little reaction in markets, traders will be watching it closely and especially the press conference from Powell.
The advance GDP report can also be a potent mover for the Dollar, especially in case of large deviations in the actual numbers compared to consensus expectations. A range of other, also important, US data will be released this week, such as the PCE Inflation Index on Friday, and the CB Consumer Confidence Index and Durable Goods Orders on Tuesday.
On the whole, the US Dollar remains in a “good position” to stay firm and keep strengthening at a moderate pace, assuming the USD reports this week are mostly neutral to positive.
Euro Fundamental Outlook – Not Much To Support EUR; Overall Bearishness Stays Intact
The ECB meeting was a complete snoozer with less than 30 pips volatility in EURUSD. President Lagarde made sure not to give off any information or bias about their future policy intentions, which played a large part in why volatility was so low during the event. However, the Euro declined after the meeting on a combination of factors, including overall risk aversion and dovish takeaways from the ECB meeting.
Most of the PMI reports released last Friday beat the consensus expectations, albeit only by a small margin. The Euro continued to slide after the releases, nonetheless, mainly because the big picture for the EU economy remains unchanged and grim. Despite the improvements, the economy is to stay weak, and the manufacturing sector is still in recession. Thus, the ECB’s easing and QE are here to stay or even increase in size, keeping the Euro an unattractive
currency to hold in the current environment.
The Eurozone will publish more important economic data this week, including the CPI Inflation (flash estimate) report and GDP reports (flash release also) from several Eurozone countries. The German Ifo business climate index, reported today (Monday), was weaker than expectations.
Given the bearish reaction to last week’s relatively positive data, it’s unlikely that the Euro will be able to stay resilient this week (especially if the Dollar continues to strengthen). If European data possibly disappoints this week, that should only help to drive the Euro lower.
EURUSD Technical Outlook:
EURUSD extended the decline last week, as we suggested in our previous weekly analysis.
The pair is now approaching the 1.10 level, which is an important support area historically. But this time EURUSD may break it, considering that EURUSD broke some key support trendlines last week after previously confirming the channel resistance at 1.12. Thus it seems like a new bearish leg has started in EURUSD, which can take it down to the channel’s support line toward 1.08 and lower.
To the upside, 1.11 is now the first notable resistance zone. And then, next in line is the channel’s falling resistance - now near 1.1150.
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