Get Forex forecasts using fundamental, sentiment and technical position analysis for major pairs for the week of May 30, 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 last week that the best trades of the week were probably:
- Below the S&P 500 after a daily close (New York) below 3,900. That didn’t happen, so there was no trade.
- Short of BTC/USD after a daily close (New York) below $28,606. This only happened at Friday’s close, so there was no trade.
The news continues to be dominated by the Russian invasion of Ukraine, now in its fourth month, but was met by an effective Ukrainian defense, armed by NATO, funded by the United States alone with more than $40 billion to date. Russian forces are currently conducting a strong offensive in eastern Ukraine and appear to be having some successalthough Ukrainian forces also counterattack. 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 keeping wheat prices relatively high.
Markets have exhibited a sense of risk aversion in recent weeks, which has been expressed primarily through falling stock markets and bearish cryptocurrency action. However, the past week has seen global equity markets rally, with a particularly strong upward move in the US market represented by the S&P 500 Index.
One of the reasons for the greater optimism about US equities was the good data on US consumer spending released last week. However, many economic concerns remain in the background, such as historically high inflation rates and the pace of rate hikes that will certainly be implemented over the next few months by the main central banks.
Important economic data releases from the past week came as follows, with no major surprises:
US FOMC meeting minutes showed next two months expected to see rate hikes 0.5%which is in line with general expectations.
Annualized preliminary US GDP from the first quarter of 2022 decline of 1.5% against 1.3% expected. The data had little impact on the market.
Data from the US Core PCE price index showed an increase of 0.3%, which was expected. This could be seen as positive for the US CPI (inflation).
The Reserve Bank of New Zealand raised rates by 0.5% to 2.00%, which is the highest rate of all major currencies.
German manufacturing and services PMI data produced no real surprises.
Cryptocurrencies continue to look very weak, with minor coins generally in serious trouble as their value declines day by day, but it should be noted that Bitcoin buyers always step in when Bitcoin threatens to fall below the zone of $28,607. It must be said that the price action is weak and there remains a serious and immediate danger of sharp falls in major cryptocurrencies. Short cryptocurrency trades will continue to attract speculators in this environment, while margin calls will force retail liquidations.
The Forex market is still dominated by a continuing sell-off in the US Dollar. The main factor driving the Forex market now is the weakness of the US dollar. Commodity currencies have been the strongest performers over the past week, and commodity indices are hitting new highs, with energy commodities performing particularly well.
We increasingly hope that the coronavirus pandemic may be almost over, with coronavirus infection rates around the world falling again in line with a long-term downward trend. The only significant increases in new confirmed coronavirus cases are currently occurring in the Bahamas, Belize, Chile, the United States, Costa Rica, Panama and Taiwan.
Next week: 30e May 3rd June 2022
The coming week in the markets should be as or less volatile than last week. A few outings of great importance are planned. These are, in likely order of importance:
US Nonfarm Payrolls / Average Hourly Earnings and Unemployment Rate – this will be analyzed for clues as to the strength of the US economy and may impact decisions on future US rate hikes.
Bank of Canada Rate Statement and Overnight Rate – the BoC should raise its rates by 0.50%.
ISM US manufacturing PMI
Australian GDP data – expected to show a slight increase.
US JOLTS Jobs
US dollar index
The weekly prize chart below shows the US dollar index fell again last week, against the long term uptrend, print a bearish candlestick which closed very near the bottom of its range. This reversal isn’t technically very notable, other than its position in the chart confluence with a long-term high, which reinforces the bearish case that we may have seen a major bearish inflection point.
A notable feature of the Forex market this week was that the greenback’s selloff was against almost every other currency, showing the market is currently driven by the weakness of the US dollar.
Despite the long-term uptrend, it will likely be a mistake to expect the Dollar to rise over the coming week.
US dollar index weekly chart
Bitcoin fell again last week in line with its long-term downtrend, for the ninth week in a row. The week ended with a close at a 17-month low and the impression of a small bearish candlestick.
These are 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. Another interesting factor is that the US stock market has shown a positive correlation with Bitcoin, but this correlation is breaking down – the S&P 500 index rose firmly last week.
Importantly, however, the price remains very reluctant to make a firmly bearish daily close below the very pivotal support level at $28,607. – the price somehow continues to refuse to spend very long below this level, although the price has been trading significantly lower. Over the past few days, this key support area appears to have survived testing from above.
Bitcoin is on the brink of an abyss, but we could see a long-term bullish bounce in this area. A key indicator will likely be whether we get a daily close below that all-important round number of $28,000.
I wrote something similar about Bitcoin last week, except I thought the key support level to use was a bit higher at $28,607. I am not discouraged by this as the price action continues to look bearish and heavy, and I continue to believe that we are more likely to see significant downward movement in price before seeing a strong bullish bounce.
BTC/USD weekly chart
I see the best opportunity in financial markets this week as likely to be: