Pairs in Focus – #EURUSD,#GBPUSD with Fundamental Analysis & Behavioral Sentiment (29-2 SEPTEMBER 2022) (2024)

The difference between success and failure in Forex / CFD trading is very likely to depend mostly upon which assets you choose to trade each week and in which direction, and not on the exact methods you might use to determine trade entries and exits.

So, when starting the week, it is a good idea to look at the big picture of what is developing in the market as a whole, and how such developments and affected by macro fundamentals, technical factors, and market sentiment. Read on to get my weekly analysis below.

Fundamental Analysis & Market Sentiment

Short of the GBP/USD currency pair, which fell by 0.75%.

Long of Natural Gas, which rose by 1.04%.

This produced an average win of 0.90%.

The news is currently dominated by the Federal Reserve Chair Jerome Powell’s speech on Friday, which was received negatively by markets. Powell stated that inflation was still too high, too persistent, and too dangerous as a driver of long-term expectations to be met with anything other than tough monetary measures as part of a struggle to drive it down. Powell said this would necessarily cause some pain to the economy and he signaled there is no chance of a dovish pivot which some analysts had been hoping for after recent inflation data suggested that CPI has already peaked in the USA. Powell’s speech at the Jackson Hole symposium sent stock markets sharply lower, and hit risk sentiment hard, which sent money flowing into the US Dollar in the Forex market and out of riskier currencies such as the British Pound, the Euro, and the commodity currencies.

A 0.50% rate hike at the Fed’s next meeting is all but certain, while analysts now see a real chance of a 0.75% as an alternate possibility.

It is worth pointing out that although the US stock market had been rising in recent week, the US stock market has technically been in a bear market for some time, with the US yield curve being inverted for several weeks now. The US is also arguably in a recession, having seen two successive quarters of GDP contraction, although wages growth and the job market remain relatively buoyant. The case for recession was boosted by data released last week which showed that in Q2 2022, US GDP shrunk at an annualized rate of -0.6%.

To recap there were two other important economic data releases last week apart from the US Preliminary GDP data. The results were as follows:

US Core PCI Price Index data – the month-on-month increase was only 0.1%, lower than the 0.2% which had been expected, slightly boosting hopes that US inflation has already peaked.
US, UK, German, and French Flash PMI data – the results were mixed, but overall, more negative than had been expected, suggesting there may be a slowing in producer output in the EU, the UK, and the USA.

The Forex market saw a rise by the Australian and US Dollars last week. The rise was broad but especially strong against the New Zealand Dollar.

Rates of coronavirus infection globally dropped last week for the sixth consecutive week. The most significant growths in new confirmed coronavirus cases overall right now are happening in Japan, South Korea, Russia, and Taiwan.

The Week Ahead: 29th August – 2nd September 2022

The coming week in the markets is likely to show a slightly higher level of volatility than last week, with Friday’s higher level of market activity following Powell’s speech likely to continue. Releases due are, in order of likely importance:

US Non-Farm Payrolls, Average Hourly Earnings, and Unemployment data (plus the earlier forecast)
German Preliminary CPI data
US JOLTS Job Openings data
US CB Consumer Confidence
US ISM Manufacturing PMI data
Swiss CPI (inflation) data

U.S. Dollar Index

The weekly price chart below shows the U.S. Dollar Index printed a bullish candlestick which closed up, in line with the long-term trend, which is bullish. The weekly closing price is a 20-year high, and the week’s rise came after the price rejected the support level below just under 105.00 a few weeks ago. These are all bullish signs, and with the chair of the Fed giving a very hawkish speech a few days ago about the need for more rate hikes to fight US inflation, the bullish technical picture is supported by sentiment and monetary policy fundamentals.

It will probably be a good idea to look for long trades in the US Dollar over the coming week. This is a very powerful, long-term bullish trend in the most important currency in the Forex market, and it remains likely to continue if sentiment remains driven by the fear of ongoing interest rate hikes negatively impacting risky assets, with the US Dollar acting as a primary safe haven.