EUR/USD, GBP/USD, USD/JPY
Weekly Forex Analysis
(January 24 – January 31, 2022)
Hey! This is Philip with our new weekly outlook for EUR/USD, GBP/USD, and USD/JPY.
The text below contains only a short preview.
EURUSD Technical Analysis:
EURUSD is still trading inside the flag consolidation pattern that is by now taking two months to unfold. After that rejection at the upper border 20 pips shy of 1.15 and near the 100-day moving average, the flag pattern could be finally ready to break this week. The price has returned toward its lower border and is now
challenging the support here around the 1.13 level.
Thus, the key support is at the 1.13 zone. A break down here will clear the road for the trend to extend. While the previous low around 1.12 can still be a moderate support zone, a break of the flag pattern (at 1.13) will signal trend continuation. In this case, 1.10 would be the next target to the downside for EURUSD.
The first important resistance to the upside remains at the 1.15 zone. A move above it would indicate a channel break, putting the downtrend in danger. Still, it won’t necessarily be that negative for the overall bearish trend as long as the price stays below the 1.16 - 1.17 area.
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US Dollar Fundamental Outlook: Fed Takes Center Stage in a Very Busy Calendar Week
Last week, the dollar remained in its ranges but recovered some lost ground from early January, much as we anticipated in our previous weekly edition. The overall USD sentiment
remains neutral with a bullish tilt. That could very well be amplified this week given the packed calendar.
The Fed meeting on Wednesday is in central focus for Fx traders. It’s not a question “if” the Fed will be hawkish, but rather “how much”? This is the key question for where the USD will trade later this week. There appear to be two relatively probable scenarios for Wednesday’s meeting:
- The Fed could surprise hawkishly by ending QE earlier (this month instead of in March), discussing quantitative tightening (QT), and committing to a rate hike at the next meeting (March). While much of this is already priced in, there should still be scope for USD strength to extend notably on such a very hawkish outcome.
- However, a more neutral-sounding Fed that doesn’t announce a March rate hike or mention QT could disappoint USD bulls, who now have pretty high expectations (4 rate hikes this year). The dollar could retrace in this scenario,
although a break of the range seems highly improbable.
The US calendar also sees the release of the advanced US GDP (Q/Q) on Thursday and PCE inflation on Friday. However, the post-Fed reaction could steal the show and mute any immediate market impact from these releases.
It is also important to watch the overall risk sentiment in the current market environment. For example, if the stock sell-off continues, it could be another bullish factor for the USD in the overall scheme of things, and could finally help push an upside breakout of the current range.
Euro Fundamental Outlook: Focus This Week on Economic Releases and Political Risks
The common European currency traded mostly down, ending the past week stronger only versus GBP and NZD. Overall, there is little to suggest individual EUR strength in the current context, and the single currency continues to trade on a neutral to bearish tone.
The calendar this week features important 1st tier economic data. Starting today (Monday), Markit’s flash PMI sentiment surveys showed better than expected business conditions in manufacturing and slightly worse than expected in the services industry. The data shows that the EU economy fared better than feared during the December lockdowns.
The market will also closely watch the German Ifo business climate index tomorrow and preliminary (flash) GDP figures from key Eurozone economies on Friday (e.g., Germany, France, Spain). While today’s less bad than forecasted PMI figures suggest some resilience, the economy’s trend has been down over the past several months. This trend is expected to continue and will not encourage any premature changes to the ultra-dovish
stance at the ECB.
Politics are also in focus for the EUR this week. Italy is electing a new President after the sitting one Sergio Mattarella resigned in December. EUR traders are also closely watching the Russia - Ukraine tensions as the Eurozone is the most closely linked economy to the situation, especially regarding energy prices. Any armed escalation on the Russian-Ukrainian border would
likely feed into EUR selling.
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Any opinions, news, research, predictions, analyses, prices or other information contained in this newsletter is provided as general market commentary and does not constitute investment advice. FX Trading Revolution will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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