Forex Forecast: Pairs in Brief
Get Forex forecasts using fundamental, sentiment and technical position analysis for major pairs for the week of June 13, 2022 here.
The difference between success and failure in Forex/CFD trading is very likely to depend primarily on which assets you choose to trade each week and in which directionnot on the exact methods you might use to determine trade entries and exits.
So, as you start the week, it’s a good idea to get an overview of what’s developing in the market as a whole, and how those developments are affected by macro fundamentals, technical factors and sentiment. of the market. Read on to get my weekly analysis below.
Fundamental analysis and market sentiment
I wrote in my previous post two weeks ago that the best trade of the week was probably:
- Short of BTC/USD after a daily close (New York) below $28,000. It was a good call as Friday’s close was below this level – Bitcoin is trading over the weekend – at $27,488 and at the time of writing, BTC/USD is down 18.84% from this price. It’s a big profit.
After more than four months, the war in Ukraine is beginning to fade from its former place as the main topic of the news. Russian forces are currently conducting a strong offensive in eastern Ukraine and appear to be having some success, although Ukrainian forces are also counterattacking. The war initially caused fairly strong movements in certain markets, in particular in certain agricultural products such as wheat and maize, but now appears to have little effect beyond helping to keep the agricultural commodities sector buoyant. The rise in commodity prices can be partly attributed to rising global inflation.
Markets shifted more firmly into risk aversion mode, with a global environment of higher than expected inflation data and central bank interest rate hikes.
Bearish sentiment on risky assets was supported by surprisingly weak US CPI (inflation) data on Fridaywhich showed an unexpected increase in the annualized rate from 8.5% to 8.6%, which is another new 40-year high. This has now triggered an expectation that the Federal Reserve may raise its interest rate this week by 0.75% instead of the 0.50% that had previously been expected. This pushed up yields on US Treasuries and corporate bonds and drove down US equity markets as equity yields become less competitive. Reinforcing the global theme of rate hikes, the Reserve Bank of Australia raised its interest rate last week and the European Central Bank was forced to make a stronger conditional commitment to a rate hike at its next meeting. in July.
Important economic data releases from the past week arrived as follows:
US CPI (inflation) data came in at 8.6%, beating consensus expectations which called for a decline from 8.5% the previous month.. The month-over-month increase was significantly higher than expected.
The European Central Bank left its main refinancing rate unchanged, as expected, but was soon forced to make firmer commitments to hike rates.
The Reserve Bank of Australia raised its rates by 0.50% to 0.85% when a rise of only 0.25% was expected.
Employment data in Canada was better than expected.
Cryptocurrencies finally appear to be taking extraordinarily strong breakouts, with minor coins generally in serious trouble as their value declines day by day, and Bitcoin is trading well below its recent support in the $28,000 area. Short cryptocurrency trades will continue to attract speculators in this environment, while margin calls will force retail liquidations. There will likely be more casualties in the cryptocurrency ecosystem.
The Forex market is dominated by the renewed strength of the US dollar while the Japanese yen, whose weakness is still tacitly encouraged by the Bank of Japan, continues to weaken.
We increasingly hope that the coronavirus pandemic may be almost over, with global coronavirus infection rates falling again last week, in line with a long-term downward trend. The only significant increases in new confirmed coronavirus cases overall are currently occurring in Belize, Brazil, Chile, Guatemala and the United Arab Emirates.
Next week: 13e June – 18e June 2022
The coming week in the markets is likely to be more volatile than last week. Several versions of great importance are scheduled and could considerably modify the markets. These are, in likely order of importance:
US FOMC Federal Funds Rate, Statement and Projections – Markets are expecting a 0.50% rate hike, but there’s a good chance the Fed will hike 0.75%.
US retail sales – this should increase, a decrease may suggest that a recession is more likely.
Official Bank Rate and Summary of Bank of England Monetary Policy – a rate hike of 0.25% is expected.
SNB policy rate and assessment of monetary policy – rates are expected to remain unchanged, leaving the Swiss franc with an unusually low negative interest rate of 0.75%.
American PPI – this should increase by 0.8% month-on-month, a stronger increase will suggest that inflation should increase further.
Australia employment data
US dollar index
The weekly prize chart below shows the US dollar index rose sharply last week, in line with long-term trends uptrend, print a bullish candlestick which closed very close to the top of its range. This is significant as it looked like the Dollar had peaked near a multi-year inflection point, as can be seen in the price chart below.
A notable feature of the Forex market this week is that the greenback’s rise has been against nearly every other currency, showing the market is currently driven by the strength of the US dollar.
Much will now likely depend on what the Federal Reserve will do and say this Wednesday. Until then, it will probably be unwise to bet against the USD.
Bitcoin fell again last week, in line with its long-term downtrend. The week ended with a close at a new 17-month low and the impression of a big bearish candlestick. The price chart below ends at Friday’s close, but over the weekend, at the time of writing, the price has fallen as low as the $22,000 zone.
These are very bearish signs, and there has been panic in the crypto sector due to the collapse of some stablecoins such as Luna/Terra. This helps the bearish case.
It looks like Bitcoin is continuing to fall, as it shows strong downward momentum and is trading in relative “blue skies”. The price could easily hit the $13,000 area very soon, making a short here an interesting trade.
The USD/JPY currency pair rose dramatically to a new 20-year high in a move that dominated the Forex market. Volatility and momentum are exceptionally strong, which argues for a further rise in the price.
Here we have a “perfect storm” dominating the Forex market, with the US Dollar clearly the strongest major currency with long-term strength behind it. the Federal Reserve is flirting with an exceptionally large rate hike of 0.75% next week. Meanwhile, the Japanese yen is the weakest major currency and is under fire from its central bank, the Bank of Japan, which desperately needs to revive the Japanese economy, whose inflation remains below the 2 target. %.
Of course, it’s unclear how far the move could go, but clear opportunities like this are rare in Forex, so trading this currency pair for the long term deserves very serious consideration. USD/JPY remains a long.
2-year US Treasury yield
Yields on 2-year US Treasuries have been rising since October 2021 in a strong and dramatic long-term trend. It is not well known that major rates such as this have been one of the most profitable instruments for trend traders over the past few decades.
This trend saw a strong rally on Friday when US CPI (inflation) data came in with an unexpected rise to a new 40-year high as it raises the prospect of a Federal Reserve rate hike next Wednesday. up to 0.75%.
2-year yields are rising in several countries, not just the US, increasing the bullish scenario here.
Many brokers don’t offer yields, but they can be traded a little less efficiently as short 2-year US Treasuries or as a futures contract.
I see the best opportunities in financial markets this week as likely to be:
- Long USD/JPY.
- Long the 2-year US Treasury yield.
- Short of BTC/USD.