Start the week of April 18, 2022 with our Forex forecast focusing on major currency pairs here.
Get the Forex Forecast using fundamentals, sentiment, and technical positions analyses for major pairs for the week of April 18, 2022 here.
The difference between success and failure in Forex trading is very likely to depend mostly upon which currency pairs you choose to trade each week and in which direction, and not on the exact trading methods you might use to determine trade entries and exits.
When starting the trading 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 and market sentiment.
There are a few strong trends in the markets, so it is an interesting time to be trading.
Technical Analysis
U.S. Dollar Index
The weekly price chart below shows the U.S. Dollar Index again rose strongly last week, in line with the long-term bullish trend, printing a bullish candlestick that closed in the top quarter of its range. This was the highest weekly close seen since May 2020. The high of the weekly candlestick has initially rejected the key resistance level at 12470. Dollar bulls will be encouraged that the bullish momentum has continued, and the price has continued to advance to new highs. However, the key resistance level at 12470 may impede further progress, at least over the short term.
Despite the potential resistance, it will probably be wise to take trades in favor of the US Dollar in the Forex market over the coming week.
S&P 500 Index
The world’s most important stock market index, the S&P 500, fell again last week, after rejecting the resistance level at 4596 which I have been noting over recent weeks. One the daily chart, the price is again trading below its 200-day simple moving average. These are bearish signs. However, downwards momentum is not yet strong enough to make any short trade here an interesting prospect.
I see the US stock market as an uncertain trade right now due to signs of deteriorating consumer demand and a tightening monetary policy from the Federal Reserve.
USD/JPY
The USD/JPY rose very strongly over the past few weeks, pausing a week without making a new high, but the past week saw the strong bullish momentum come roaring back. The past week saw the price rise again strongly, peaking at ¥126.68, which is the highest price for almost 20 years.
There is a reason to keep looking to the bullish side after such a strong price movement and resumed bullish momentum, and public declarations from the Bank of Japan suggesting they could tolerate the price rising as high as ¥130 before intervening.
As long as the price remains above a key former resistance level at ¥124.93 last week, I am prepared to hold a long bias on this currency pair.
10-YR US Treasury Yield
There has been much focus on US treasury yields lately, after the yield curve briefly inverted a couple of weeks ago, and as the Fed and other major central banks begin to take significant steps to tighten monetary policy.
The US Dollar is the strongest major currency right now, and this is partly because the yields on its treasury bills continue to climb to new long-term highs not seen in 3 years.
The 10-year yield is increasing more strongly than the 2-year yield so the bullish momentum in treasury yields is here. This makes an attractive long trade if you have access to the right instrument to do it, such as a micro future or an ETF.
EUR/USD
The euro continues to get punished, and I think at this point we are getting ready to attempt to break down below the 1.08 level. Having said that, there is a significant amount of support here, so a short-term rally is almost certain to happen. Nonetheless, this should end up being a nice shorting opportunity and at this point, I have no interest in trying to buy this market. Keep in mind that the area below 1.08 is very noisy, so the drive down to the 1.06 level will more than likely be more of a grind than any type of freefall unless headline shocks cross the wires.
GBP/JPY
The British pound has rallied again against the Japanese yen, breaking through a major barrier in the form of the ¥165 level. That being said, we are overstretched, so I think this is a situation where you may look for a short-term pullback in order to get involved again. The ¥162.50 level should be supported, just as the ¥160 level will be. That being said, I do not expect that deep of a correction, but it is certainly within the realm of possibility. Keep in mind that as long as the Bank of Japan is looking to find interest rates rising, they will have to continue to keep quantitative easing in play, the main driver of this move.
EUR/GBP
The euro is approaching a very important region on the longer-term charts as far as support is concerned. The 0.82 level being tested is a big deal, and if we were to break down below that level, the bottom will follow out of this pair. More likely than not, we will get a short-term bounce, but I would be a seller of that move because without a doubt the euro is one of the weakest currencies that we currently deal with. If we do get that breakdown, it will become a longer-term position.
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