Fundamental Analysis & Market Sentiment
I wrote on 30th June that the best trade opportunities for the week were likely to be:
- Long of USD/JPY currency pair. This produced a gain of 0.63%.
- Long of the AUD/JPY currency cross. This produced a gain of 2.25%.
- Long of the CAD/JPY currency cross. This produced a gain of 1.03%.
- Long of the NASDAQ 100 Index following a daily close above 20,000. This set up on Tuesday’s close and produced a gain at the end of the week of 1.77%.
The overall result was a net gain of 5.68%, giving an average return of 1.14% per trade.
Last week’s key takeaways were:
- US Non-Farm Payrolls and Average Hourly Earnings data came in on Friday more or less as expected, showing the pace of increase of average hourly earnings is slowing, although the unemployment rate was slightly higher than expected at 4.1%. Stock markets reacted positively, sending the major US equity indices firmly higher to close at new all-time highs.
- On Tuesday Fed Chair Powell stated that the rate of inflation is trending downwards, which also created more dovish expectations from the Federal Reserve, which began an upwards move in stock markets that took on even more momentum on Friday.
- The Eurozone Flash CPI Estimate was mixed, showing the headline annualized rate is likely to fall from 2.9% to 2.8%, but at the same time it showed an uptick in the Core rate.
There were a few other events last week which were of much lower significance to the market, at least in the near term:
- French Parliamentary Election Second Round – polling suggests that the far-right National Rally, the winner of the first round, will fail to win a Parliamentary majority in today’s run-off election. The centrist and far-left parties are collaborating in tactical withdrawals of candidates to try to stop the National Rally.
- British General Election – the opposition Labour Party won a landslide victory, albeit with a relatively small share of the vote of only 34%. Anti-immigration and far left parties won almost as much, as did the Conservative and Reform Party votes taken together. There were some ugly examples of communal politics with Islamist candidates winning a few seats. Turnout was relatively low. The Labour victory was expected by the market and had little impact upon the British Pound or British stock market.
- FOMC Meeting Minutes were released from the last Fed meeting. They had little impact.
- US New Home Sales – came in just slightly below expectations.
- German Preliminary CPI – came in below expectations at a month-on-month increase of only 0.1%.
- Swiss CPI - came in below expectations at zero month-on-month change.
- Chinese Manufacturing PMI – met expectations.
- US ISM Manufacturing PMI – below expectations, suggesting a slowing US economy.
- US ISM Services PMI – below expectations, suggesting a slowing US economy.
- US Unemployment Claims – met expectations.
- Canadian Unemployment Rate – slightly higher than expected.
Overall, there is a theme of declining inflation and slowing economies, which is broadly supportive of rate cuts.
Top Forex Brokers
The Week Ahead: 8th – 12th July
The most important items over this coming week will be:
- US CPI.
- Fed Chair Powell testifies before Congress about monetary policy.
- US PPI.
- Prelim UoM Consumer Sentiment Reserve Bank of New Zealand Official Cash Rate and Rate Statement.
- Swiss CPI.
- UK GDP.
- US Unemployment Claims.
Monthly Forecast July 2024
This month, I forecasted that the USD/JPY currency pair will increase in value.
Weekly Forecast 7th July 2024
Last week, I made no weekly forecast, as there were no unusually large swings in any Forex currency crosses, which is the basis of my weekly trading strategy. This week, there were some large directional movements in the AUD/JPY and GBP/JPY currency crosses, but I have little faith that these will reverse over the coming week, so I again make no forecast.
Directional volatility in the Forex market rose last week, with 27% of the most important currency pairs fluctuating by more than 1%.
Last week, the Australian Dollar was the strongest major currency, while the US 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 printed large bearish candlestick last week, which closed very near the low of its range. These are signs suggesting short-term bearish momentum, as is the fact that the US Dollar was the worst-performing of all the major currencies last week. This analysis is reinforced by the fact that the price action was contained just below the descending trend line above, the horizontal resistance level at 105.80, and the round number at 106.00. This suggests that the price reversed after failing to make a bullish breakout beyond this area.
There is a bullish long-term trend as the price is above its levels from 3 months ago and its price of 6 months ago. However, this trend looks to be in danger. The price is now approaching a key support zone between 104.15 and 103.92, and if the price breaks below this zone this week, it will be a bearish sign.
The weaker Dollar has been driven by more dovish signals from the Federal Reserve last week, and some good news on global inflation. This week’s US CPI data will probably be crucial in determining what happens to the Dollar next.
I see the Dollar as a bit of a sideshow right now, at least until the CPI data release, with the Forex market currently driven by weakness in the Japanese Yen and strength in the Australian Dollar.
USD/JPY
The USD/JPY currency pair printed a bearish pin candlestick last week, after making a new 38-year high, rejecting the resistance levels at ¥161.37 and ¥161.83.
The Japanese Yen has been showing a real long-term weakness as the Bank of Japan continues to stall in really changing its ultra-loose monetary policy. However, the US Dollar lost considerable ground last week, so the price change here over the week was slightly negative.
Long trades may work out well here over the coming week. However, bulls need to beware of potential sudden intervention by the Bank of Japan or profit-taking when key psychological levels such as ¥162.00 or the high just below that are reached.
As a trend trader, I am only happy to enter a long trade in this currency pair after we see a daily close above ¥162.00 which would show renewed bullish momentum trading in blue sky.
AUD/JPY
I expected that the AUD/JPY currency would rise last week, and it did, continuing its long-term bullish trend as it reaches new long-term high prices. It is worth noting that the Australian Dollar was the strongest major currency last week and has consistently gained over the past year against other currencies, so it is showing a bullish long-term trend and is in focus.
On the other side of this currency cross, the Japanese yen is weak, which is arguably the major defining feature of the Forex market right now.
These are good reasons to be long of this currency cross – both the short-term momentum, best of momentum, and the long-term trends in the market all support taking this position. I see this cross as a buy.
EUR/JPY
The EUR/JPY currency cross rose quite strongly during the week, continuing its strong long-term bullish trend as it reached new long-term high prices. Interestingly, the Euro performed quite well last week possibly as polling suggests the National Rally party will fail to secure an overall majority in France in the election today, although deadlock will bring its own problems.
The Japanese yen is weak, which is the major defining feature of the Forex market right now. This is a good reason to be short of the Japanese Yen. As the Euro is showing some momentum, this cross may be a good one to use to try to exploit that, or at least to include within a short Yen basket.
GBP/JPY
The GBP/JPY currency cross rose very strongly last week, continuing its long-term bullish trend as it reached new long-term high prices. The British Pound is one of the best-performing currencies over both the long and short term and may have received a boost from the very decisive UK election result at the end of last week, which may ensure the UK has a firmer and more effective government.
The Japanese yen is weak, which is the major defining feature of the Forex market right now. This is a good reason to be short of the Japanese Yen. As the British Pound is showing some bullish momentum, this cross may be a good one to exploit over the coming week.
GBP/USD
The GBP/USD currency pair advanced quite strongly last week, with the British Pound in a long-term bullish trend and also showing short-term bullish momentum, possibly helped by the UK election result last week which may bring a firmer and more settled government. Markets did not react negatively to the election result.
The price ended the week at a 3-month highest daily close, which is a bullish sign in itself. The weekly close was also near the high of the week’s range, which is a bullish sign.
The signs are bullish, but I would like to see a strongly bullish daily close above $1.2905 before entering any new long trade here.
AUD/USD
The AUD/USD currency pair advanced strongly last week to reach a new 6-month high. This pair is in focus as the Australian Dollar was again the best performing major currency over the week, while the US Dollar was the worst.
The rise in price here got a tailwind from some dovish rhetoric which came from the US Federal Reserve last week, which boosted risk-on sentiment and therefore the Aussie, while it also sent the US Dollar lower, after it was unable to overcome technical resistance.
The signs are bullish, but a look at the weekly price chart below shows that there could be strong resistance in the $0.6850 area, where there was a strongly bearish inflection the last time it was reached.
NASDAQ 100 Index
The NASDAQ 100 Index reached a new all-time high last week after rising very strongly on Friday well above the huge round number of 20,000. The price closed not far from the high of the week’s range. These are very bullish signs.
It makes sense to be bullish on this major stock market index when it has recently made a new record high. Historical precedent shows this tends to produce further gains quickly. Added to this, the NASDAQ 100 has returned an average gain of 15% since it was launched in 1985.
I, therefore, see the NASDAQ 100 Index as a buy right now.
S&P 500 Index
The S&P 500 Index reached a new all-time high last week after rising very strongly on Friday well above the round number of 5,500. The price closed very near the high of the week’s range. These are very bullish signs.
It makes sense to be bullish on this major stock market index when it has recently made a new record high. Historical precedent shows this tends to produce further gains quickly, typically of about 12% over the next year.
I, therefore, see the S&P 500 100 Index as a buy right now.
Bottom Line
I see the best trading opportunities this week as follows:
- Long of the USD/JPY currency pair following a daily close above ¥162.00.
- Long of the AUD/JPY currency cross.
- Long of the EUR/JPY currency cross.
- Long of the GBP/JPY currency cross.
- Long of the NASDAQ 100 Index.
- Long of the S&P 500 Index.
Ready to trade our Forex weekly forecast? We’ve shortlisted the top Forex brokers for you to check out.