Currency Analyst since 2010

Weekly Forex Forecast: August 4-10

   By Elizaveta Belugina

We had a very volatile week. Firstly US dollar strengthened versus the majority of currencies on much better-than-expected GDP growth, but then American currency fell on Friday after NFP was lower than forecast (209K vs. 231K) and unemployment rate increased to 6.2%.

The next week еhe market players will be also assessing the US data and continue making assumptions about the Fed. The week will be also marked by the meetings of the central banks – the RBA, the ECB and the Bank of England and, finally, the Bank of Japan.

EUR/USD retraced 50% of the advance from 2013 to 2014 as it hit the new minimum of 2014 at $1.3366. Even if we don’t look at the US, the single currency has its own bearish factors: euro area’s inflation fell to 0.4%. In addition, the single currency was hit by the EU sanctions against Russia as they will likely backfire on the European companies and there were problems with Portugal’s largest bank, Banco Espirito Santo. The main question now, after NFP is: will euro be able to correct higher next week? It will, if a hammer forms on the weekly chart as the short positions on EUR have reached the maximal levels since November 2012 and the currency has become quite oversold. Moreover, low inflation in the euro region was mostly priced in the pair’s rate, and core price growth on the other hand held steady at 0.8%. In addition, the ECB is not expected to do more easing next week. There’s talk about negotiations between Russia and Ukraine. There’s scope for rebound to $1.3520. At the same time, remember that the trend remains bearish, and the policies of the ECB and the Fed are diverging and soon will be diverging more. On the downside one should watch $1.3370, $1.3550 and $1.3295.

Events to watch:

The picture for GBP/USD looks bearish and a close below the 100-day MA at $1.6855 will confirm the negative scenario. The past week was marked by the strong decline in the UK manufacturing PMI and the IMF’s comment that sterling’s overvalued. Hawkish comments from the Bank of England seem less likely now. Technically, the pound won’t have much support ahead of $1.6700. Resistance is at $1.6935/65.

Events to watch:

USD/JPY met resistance at 103.00. Support is in the 102.40 area and at 102.05/00. The Bank of Japan is widely expected to keep the policy on hold next week. Still, the policymakers might discuss their outlook for exports: if exports stay listless or deteriorate further, the BOJ could come under renewed pressure to add to its already massive stimulus measures.

Events to watch:

AUD/USD has breached important support in the $0.9320 area. Australian dollar was affected by the not so positive risk sentiment which certainly wasn’t helped by Argentina’s debt default. There also were negative data from Australia. Further resistance is at $0.9360 and $0.9400. The RBA will likely leave policy unchanged. High inflation will make it difficult for the regulator to talk down the currency. Downside target is at $0.9210/00.

Events to watch:

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