EURUSD, GBPUSD, USDJPY
Weekly Forex Analysis
(February 24 - February 28, 2020)
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US Dollar Fundamental Outlook: USD At Multi-Year Highs, But Is It Time For Some Consolidation Now?
The Dollar continued to advance higher last week but then fell sharply on Friday, erasing almost all of the gains for the week.
Some have pointed to the disappointing Markit’s PMIs as the main reason for the Friday decline, however, it would be injudicious to attribute the reversal solely on this factor. That is mainly because Markit’s PMI surveys don’t have a big impact on the Dollar since the PMI surveys released by the US Institute for Supply Management (ISM), which measure the same thing, have much more significance for USD traders.
With that said, we can look at some of the other factors that lead to the Dollar’s decline at the end of the last week. To a large extent, the Dollar having reached some strong technical resistance levels is not a factor to be overlooked. Also, profit-taking due to the same reason certainly played a role after the powerful USD advance recently. Dovish comments from Fed’s Lael Brainard and a rebound in other currencies on Friday (especially the Euro)
also played a part.
The USD calendar for the week ahead is relatively light with no major/impactful events scheduled, so the Dollar is likely to continue trading based on global developments and movements in other currencies for this week. The CB consumer confidence index, durable goods orders, the PCE price index, and the Chicago PMI are the highlights of the calendar for the new week.
It’s important to keep in mind, however, that Friday’s decline may mark a reversal in sentiment toward the Dollar, which may continue into this week and the even following weeks. Especially, given that this week doesn’t feature any tier 1 economic data, it’s likely that some of the bearish sentiment would persist. Then, in the first week of March, the NFP and the ISM PMI services & manufacturing surveys will be released, which the market will watch closely
and will then be the major factors for determining the USD direction.
If not a complete reversal of this USD bullish leg, at least, a sideways correction going into the NFP week looks likely for the greenback at this point.
Euro Fundamental Outlook: Rebound In EZ PMIs Helping EUR To Bounce; Will It Now Last?
The Euro was able to recover some of the losses last week as the services and manufacturing PMI surveys surprised positively on Friday and kick-started a broad bounce in the currency.
As we suggested in our contrarian EURUSD trade idea as part of our Profitable Forex Newsletter, the Euro was getting deeper into undervalued territory, so it was ripe for a rebound. The bullish move could extend this week, especially if Eurozone data again surprise positively.
The calendar for this week features the German Ifo business climate index, the Spanish, German, and French flash CPI inflation reports, and also French flash GDP. The German Ifo index was just published this Monday morning and showed improvement in business sentiment - tracking last week’s PMIs higher. This should favorable for the Euro this week and drive it further up, especially if the other data is also positive.
At the same time, however, we must keep in mind that a continuation of the downtrend is still possible. The bounce on Friday doesn’t yet have the signs of a confirmed bottom at this stage. In the contrary scenario, if this week’s data disappoints or isn’t positive, then there wouldn’t be much to fuel the Euro rally further, and the single currency may even find itself slipping again.
EURUSD Technical Outlook:
EURUSD bounced nicely last week around the lower end of the 18-month bear channel, almost exactly as we expected here in our previous weekly analysis post.
The first signs for a bottom here are now on the chart, though more will be needed to confirm this reversal and give us more confidence that the low of this bearish leg is behind us.
From current levels to the upside, 1.09 is the first resistance in sight, though more attention will be placed on the obvious 1.10 area. If EURUSD continues to move convincingly higher (such as in an impulsive manner), then 1.10 will likely be reached.
To the downside, the 1.0750 zone represents a tight confluence support zone. A breakdown below it would mean that EURUSD is breaking out of the bearish channel to the downside, which can be a dire bearish sign. Although it presently looks unlikely, such a scenario is surely possible (a similar situation happened on USDJPY last week, only in the opposite direction).
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