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The Week Ahead – Data-driven

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EURUSD rises on solid economic recovery

Chart of EURUSD

The euro edges higher as sturdy fundamentals may allow the ECB to stay hawkish. Judging by the latest PMIs, business activity in the euro zone continues to recover, mostly across service sectors. Decent economic foundations would incentivise the ECB to carry on to lower its inflation target towards what now seems to be a rather symbolic 2%. The market is expecting a series of 25 basis point rate hikes into the summer. A strong reading of last month’s retail sales in spite of rising living costs would build the case for further narrowing the rate differential with the Fed. 1.1030 is a key resistance and 1.0550 the current floor.

USDCAD finds support from soaring oil prices

Chart of USDCAD

The Canadian dollar strengthened as oil prices surged to two-month highs. The Bank of Canada paused its interest rate hiking campaign in March, making the upcoming meeting likely to be uneventful. As markets scaled back bets of further tightening from other central banks, the loonie could finally stand out with the greenback’s softness and surging crude prices being major drivers of its price action. A sharp rally in the price of oil following the OPEC+ plans to cut more production has given the commodity-linked currency an edge against its neighbour. The double bottom at 1.3260 is a critical floor and 1.3750 the first resistance.

UKOIL rebounds over tighter supply

Chart of UKOIL

Brent crude bounces back over additional output cuts. The market is trying to balance its wariness about economic prospects with limited supply growth. By announcing production cuts on top of existing curbs OPEC+ members are trying to regain initiative in a rather gloomy market environment. The EIA report showing a fall in US inventories would exacerbate the perception of tighter supply and bolster the bullish mood. However, lacklustre manufacturing activity in the US and China and overall cautious sentiment may temper the optimism. 70.00 has become an effective floor as the price tests the first hurdle at 86.50.

NAS 100 recovers in hope of Fed pivot

Chart of US100

The Nasdaq 100 rallies as weak economic data argue for a Fed pivot. The market is weighing growing signs of a slowing US economy driven by an aggressive tightening campaign. Recent data have shown that rate hikes are working their magic with soft manufacturing activity and a cooling labour market. However, decades-high inflation would still take some time to come down and that makes investors wonder when the Fed will draw a line. The price action might contradict the fear of a recession but it is the hope of a rate cut by as soon as this summer that is driving the narrative. 13700 is the next target with 12500 as the support.

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