Weekly Forex Forecast – EUR/USD, USD/CHF, Gold, S&P 500 Index

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Fundamental Analysis & Market Sentiment

On August 11th, it was predicted that the best trade opportunities for the week were likely to be:

• A long position on the EUR/USD currency pair, which produced a gain of 1.03%.
• A long position on Gold in USD terms, following a New York close at or above $2,471. This setup occurred on Monday and resulted in a gain of 1.46%.
• These trades delivered a total gain of 2.49%, averaging 1.25% per asset.

Last week's key takeaways were:

1. US CPI (inflation) data released last week showed an unexpected slowing of the annualized rate from 3.0% to 2.9%, which produced a minor weakness in the US Dollar and a rally in stock markets.
2. US PPI data, often seen as a key inflation metric, also came in lower than expected, suggesting weakening inflationary pressure.
3. Goldman Sachs cut its forecast of a recession in the USA from 25% to 20% after stronger-than-expected retail sales and unemployment claims data were released last week.
4. UK CPI data came in a fraction lower than expected, rising to an annualized rate of 2.2% when a rate of 2.3% was expected, suggesting weakening inflationary pressure in the UK.
5. The RBNZ made a surprise rate cut by 0.25% to 5.25%, sending the Kiwi lower for a while.
6. UK GDP data showed no growth, as expected.
7. UK Retail Sales data was a fraction weaker than expected.
8. Australian Wage Price Index was a fraction lower than expected at 0.8% on a quarterly basis, a fraction lower than expected, suggesting a weakening of inflationary pressure.

The Week Ahead: 19^th – 23^rd August

It will be a relatively light week ahead in terms of data, with the most important items this coming week expected to be:

1. US FOMC Meeting Minutes.
2. Jackson Hole Symposium
3. Canadian CPI.
4. Flash Services & Manufacturing PMI – USA, UK, Germany, France
5. Canadian Retail Sales.

Monthly Forecast July 2024

The forecast for the EUR/USD currency pair predicts an increase in value for the month of August. The forecast performance thus far is as follows:

Weekly Forecast 18^th August 2024

No weekly forecast was made for last week, as there were no significant movements across a large group of currency crosses, which forms the basis of the trading strategy.

Similarly, this week, no forecast was provided due to the fact that only two major currency pairs/crosses fluctuated in value by more than 2%. Profitable reversals are more likely when several crosses experience abnormal price movements.

Directional volatility in the Forex market rose last week—41% of the most important currency pairs and crosses fluctuated by more than 1%. The Australian Dollar was the strongest major currency last week, while the Japanese Yen was the weakest.

Key Support/Resistance Levels for Popular Pairs

Technical Analysis

US Dollar Index

The US Dollar Index printed a bearish inside bar last week, with the close positioned on the lower ascending trend line of a consolidating triangle chart pattern that has held the Dollar for almost two years. The price closed near the low of the week’s range and was below its levels three and six months ago, indicating a long-term bearish trend for the greenback.

All signs point to lower prices for the US Dollar Index over the coming week. However, bulls may have some hope, as the ascending trend line has not yet broken and could provide crucial support. The bearishness is further reinforced by last week's weaker-than-expected US CPI data.

For confirmation of this bias, a daily close below the ascending trend line is preferred.

EUR/USD

The EUR/USD currency pair finally made a bullish breakout from its 2024 range, climbing above the round number at $1.1000, though it could not close the week above the resistance level just below $1.1030.

This move was triggered by weaker-than-expected US CPI data, though the price had been threatening this breakout for some time. The Euro remains a relatively strong currency, and this pair historically trends reliably, despite deep retracements, making it an attractive long trade for trend traders.

USD/CHF

The USD/CHF currency pair was expected to encounter resistance at $0.8711 and $0.8748.

The H1 price chart shows how price action rejected both of these resistance levels with bearish pin bars upon reaching them, marked by the down arrow in the chart. Both rejections occurred just after the start of the London / New York session overlaps, which often provides favorable opportunities for reversals in the US Dollar.

The first trade produced a 2:1 profit, while the second had a maximum reward-to-risk ratio of 2:1.

XAU/USD

Gold has been steadily climbing in a long-term bullish trend. Last week, it made a significant move, breaking to a new record high and passing the round number of $2,500.

The price closed near the high of the week, with the move primarily driven by Wednesday’s weaker-than-expected US CPI data. The story wasn’t just about a weak Dollar; Gold acted as a risky asset, especially as stock markets also saw a strong rise last week.

With no significant obstacles in sight, and the price trading above $2,500, further price advances are expected. Gold’s momentum is bullish, making it a strong candidate for higher prices in the coming week.

S&P 500 Index

The S&P 500 Index saw a strong rise last week, closing near the high of its range, demonstrating strong bullish momentum for the second consecutive week.

Risky assets, including stock markets, recovered firmly following the unexpectedly low US CPI data. The weak Dollar aided the rise, but the narrative was largely focused on the stock market and risk appetite.

However, caution is warranted as the price approaches the recent record high. Profit-taking is likely as the index nears its all-time high. It may be wise to wait for a New York close above 5,668 before entering any new long trades.

Bottom Line

The best trading opportunities this week are expected to be:

• A long position on the EUR/USD currency pair.
• A long position on Gold in USD terms.