Weekly Forex Forecast – EUR/USD, GBP/USD, AUD/USD, S&P 500 Index, USD/CAD

Fundamental Analysis & Market Sentiment

I wrote on 7^th July that the best trade opportunities for the week were likely to be:

1. Long of the USD/JPY currency pair following a daily close above ¥162.00. This did not set up.
2. Long of the AUD/JPY currency cross. This produced a loss of 1.23%.
3. Long of the EUR/JPY currency cross. This produced a loss of 1.18%.
4. Long of the GBP/JPY currency cross. This produced a loss of 0.49%.
5. Long of the NASDAQ 100 Index. This produced a loss of 0.14%.
6. Long of the S&P 500 Index. This produced a win of 0.76%.

The overall result was a net loss of 2.28%, giving an average return of -0.38% per trade.

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Last week’s key takeaways were:

1. On Saturday, there was a seeming assassination attempt against former President Trump at his campaign rally in the US state of Pennsylvania. It may be that markets move in a risk-off direction when they open this week for some time, although so far, there is no indication the shooter was part of a conspiracy nor that former President Trump suffered any serious physical damage. However, the incident will certainly raise the political temperature in the USA as the November voting for President, Congress, etc. approaches.
2. Fed Chair Jerome Powell's testimony to both Houses of Congress on monetary policy early in the week was seen as neutral or perhaps a bit dovish. Powell said that inflation seems to be trending down, but the Fed will be looking for more evidence of declines in inflation before making a rate cut. This boosted stocks.
3. Highly important US CPI data was released, which showed inflation falling a bit further than expected. The month-on-month rate showed deflation of 0.1%, and the annualized rate fell to 3.0%, the lowest rate seen since June 2023. This initially boosted stocks, but stocks and the US Dollar sank quite strongly. It may be that the deflation spooked markets, which now see a stronger chance of a US recession, or it may have just been profit-taking in stocks.
4. The week ended with higher-than-expected US PPI data, again raising inflation expectations despite the fall to 3.0% announced earlier. Month-on-month PPI increased by 0.2%, while only 0.1% was expected. Stocks recovered somewhat on Friday, but not by much.
5. The Japanese Yen rose strongly towards the end of the week, pushing the benchmark USD/JPY currency pair low enough to make most trend traders exit any long position. The Bank of Japan may have taken the opportunity of the market's natural movement against the US Dollar to move the needle by buying Yen.

There were a few other events last week which were of lower significance:

1. RBNZ Official Cash Rate & Rate Statement – the RBNZ left the Cash Rate at 5.50% as expected but gave a minor dovish surprise by stating that inflation is coming under control, which caused a weakening in the NZD that day.
2. UK GDP increased month-on-month by 0.4%, considerably more strongly than the expected 0.2% increase. This may have helped the British Pound rise firmly to new highs over the week.
3. US Preliminary UoM Consumer Sentiment was below expectations, suggesting US consumer confidence is decreasing.
4. US Unemployment Claims –very slightly better than expected.

The Week Ahead: 15^th – 19^th July

The most important items over this coming week will be:

1. ECB Main Refinancing Rate & Rate Statement – the ECB is expected to leave its Main Refinancing Rate at 4.25%.
2. US Retail Sales.
3. UK CPI.
4. Canadian CPI.
5. New Zealand CPI.
6. UK Retail Sales.
7. Canada Retail Sales.
8. US Unemployment Claims.
9. UK Claimant Count Change.
10. Australian Unemployment Rate.

Monthly Forecast July 2024

This month, I forecasted that the USD/JPY currency pair would increase in value. The performance of this forecast to date is as follows:

Weekly Forecast 14^th July 2024

Last week, I made no weekly forecast. Although there were some large directional movements in the AUD/JPY and GBP/JPY currency crosses, I had little faith that these would reverse over the coming week, so I did not want to take these trades. This was the wrong call, as both would have been profitable trades.

Last week, there were unusually large directional price movements in the NZD/JPY and EUR/NOK currency pairs. However, I do not have faith that these prices will revert over the coming week, so I again make no forecast this week.

Directional volatility in the Forex market rose last week, with 48% of the most important currency pairs fluctuating by more than 1%.

Last week, the Japanese Yen was the strongest major currency, while the New Zealand Dollar was the weakest.

You can trade these forecasts in a real or demo Forex brokerage account.

Key Support/Resistance Levels for Popular Pairs

Technical Analysis

US Dollar Index

The US Dollar Index again printed a large bearish candlestick last week, closing quite near the low of its range. These are signs suggesting short-term bearish momentum, as is the fact that the US Dollar was one of the worst-performing of all the major currencies last week. The price action breaking below a supportive zone reinforces this analysis.

There is no longer a clear long-term trend as the price is below its level of 3 months ago but still above its price of 6 months ago. However, this trend looks to be in danger.

The weaker Dollar has been driven by last week's more dovish signals from the Federal Reserve and some good news on US inflation, which reached its lowest annualized rate since June 2023.

I see the US Dollar as weak, with technical room to fall as low as 102.25 before reaching any key support. That support is near the ascending trend line, which could reinforce that support. Therefore, I will be prepared to take a trade against the US Dollar over the coming week.

EUR/USD

The EUR/USD currency pair advanced quite strongly over the past couple of days at the end of last week to make its highest daily and weekly close in 3 months. These are bullish signs, but it should be noted by looking at the price chart below that the price is still not in blue sky and can barely be said to be breaking out.

Some traders may be ready to enter a new long trade, but I think it would be wise to wait for a daily close above the next resistance level before making such an entry.

I will enter a long trade if we get a daily close this week above $1.0920.

A long trade here will be supported by the general weakness in the US Dollar, and we may see more movement in the Euro as the ECB’s policy meeting this week approaches.

GBP/USD

The GBP/USD currency pair advanced very strongly last week, making its strongest weekly move in many months. The price closed very near the top of its range at a new 11-month high price, so it is trading in blue sky. These are all very bullish signs.

The US Dollar is weak after it sold off and broke below support over the past week, invalidating its former long-term bullish trend. We now see short-term bearish momentum in the greenback.

Conversely, we see strength in the British Pound, which may have been boosted by higher-than-expected UK GDP data released last week.

The signs are bullish, so I see this currency pair as a buy now.

AUD/USD

The AUD/USD currency pair advanced quite strongly last week. The price closed near the top of its range at a new 7-month high price, trading in blue sky. These are all bullish signs.

The US Dollar is weak after it sold off and broke below support over the past week, invalidating its former long-term bullish trend. We now see short-term bearish momentum in the greenback.

Conversely, we see strength in the Australian Dollar, which has been the most consistently bullishly trending of all the major currencies over the past year. The Australian Dollar typically does well in periods of risk-on sentiment in the market, as we have seen in recent weeks and months. This might continue, but yesterday's assassination attempt on former President Trump may spook risk sentiment as markets open in Asia later today.

The Australian Dollar typically does not trend very reliably. Still, the persistence and length of the current trend suggest that we will see higher prices this week and that the price has room to rise technically without reaching any key resistance until $0.6877.

S&P 500 Index

The S&P 500 Index reached a new all-time high last week after rising firmly during the first part of the week. However, once the US CPI data showing month-on-month deflation was released, markets were spooked enough to trigger a major selloff in stocks, but this was centred more on tech stocks than on anything else. The NASDAQ 100 Index ended the week lower, but the broader S&P 500 Index held some gain over the week. Notably, the record high was made on the last day of last week.

It makes sense to be bullish on this major stock market index when it has recently made a new record high and retraced by only a small amount. Historical precedent shows this tends to produce further gains quickly, typically of about 12% over the next year.

I, therefore, see the S&P 500 Index as a buy, but only after we get another record-high daily close, which would be above 5,634.

USD/CAD

I expected the USD/CAD currency pair to have potential support at $1.3590.

The H1 price chart below shows how an inside bar, marked by the up arrow, rejected this support level right at the start of last Thursday's New York session, signaling the timing of this bullish rejection. This can often be a great time to enter new trades in currency pairs involving the US Dollar, such as this one.

This trade could still be open, but so far, it has given only a maximum reward-to-risk ratio of less than 1 to 1.

Bottom Line

I see the best trading opportunities this week as follows:

1. Long of the EUR/USD currency pair following a daily close above $1.0920.
2. Long of the GBP/USD currency pair.
3. Long of the S&P 500 Index following a daily close above 5,634.

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