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July 25, 2020

First, a review of last week’s events:

  • EUR/USD. The USA does not bring good news to the markets.  Escalating tensions between Beijing and Washington, rising jobless claims, and the ongoing COVID-19 offensive frighten investors, raising doubts about the imminent recovery of the American economy. The Nasdaq and S&P500 indexes turned red at the end of the week. However, their decline is not yet large enough to return investor interest to the dollar - the USD (DXY) index continues to fall and has already reached 94.4, which is even below the low of March 09, 2020.
    In his speech on Thursday, July 23, the head of the Treasury Department, Steven Mnuchin drew attention to the weakening of the dollar and noted that the USA intends to protect its stability. However, the same Mnuchin said in the same speech that in addition to the fourth package of economic stimuli worth $ 1 trillion, which is currently being discussed in Congress, a fifth one may also be required. And this, coupled with cheap liquidity from the Fed and the possible emergence of a vaccine against the coronavirus, means that stock markets can turn north again, and the dollar can continue to move further south.
    In the future, additional pressure on the US currency can be exerted by the issue of bonds worth €750 billion, which the European Commission plans to carry out. The lion's share of China's gold and foreign exchange reserves is denominated in dollars now. That is just over $3 trillion. And if Beijing, offended by the United States and PresidentTrump, decides to transfer some of them into Eurobonds, this will cause another dollar collapse, which has already yielded 465 points to the euro in July alone. Of these, 215 points were made over the past week.
    This development was expected by 80% of analysts, supported by 75% of oscillators and 95% of trend indicators. And this forecast turned out to be correct, except that the EUR/USD pair did not just break through the 1.1500 resistance, but reached the 1.1650 high, where it ended the five-day session;
  • GBP/USD. The vast majority of experts (70%) expect that market interest in the dollar will continue to weaken, and this will help the GBP/USD pair to continue its northward movement, which began on June 30. The main target was the June 10 high of 1.2810, and this target was practically reached: the pair rose to the height of 1.2803 on the evening of Friday July 24. This was followed by a slight rebound and a finish at 1.2790;
  • USD/JPY. Apart from a single blowout on June 02-05, the pair has not left the 106.00-108.10 side corridor for 15 weeks. Moreover, this channel has narrowed even more in the last week, to just 75 points. In such conditions, the opinions of experts were divided equally: 50% for the growth of the pair, 50% for its fall. But 85% of the oscillators and 100% of the trend indicators on D1 pointed to the south and were right. The first attempt to break through the 106.65 support on Tuesday July 21 ended in failure. But the bears did not stop there, and the pair went for a new breakthrough on Thursday July 23, this time successful. It reached a local bottom at 105.65 by Friday evening, and the final chord of the week sounded in the 106.00 zone four hours later;

As for the forecast for the coming week, summarizing the views of a number of experts, as well as forecasts made on the basis of a variety of methods of technical and graphical analysis, we can say the following:

  • EUR/USD. So, the fourth and fifth economic stimulus packages, liquidity from the Fed and the COVID-19 vaccine can seriously support the US stock markets. However, according to experts of Moody's Analytics, if the decision to stimulate the American economy is stuck in Congress for a long time, the risks of a double recession will seriously increase. In addition, until the pandemic recedes, unemployment will continue to be in two-digit numbers. Those factors could push the Nasdaq and S&P500 further down, which would return investor interest in the dollar as a protective asset.
    It is clear that 100% of the trend indicators on both H4 and D1 are colored green at the end of the trading session, on July 24. Among the oscillators, there are fewer of them - 75%, while the remaining 25% signal that the EUR/USD pair is overbought. 45% of experts expect at least a downward correction, another 35% vote for the transition to a sideways trend, and 20% for further growth of the pair. Support levels­ are 1.1500 and 1.1380, resistance levels are 1.1740 and 1.1815.
    As for the graphical analysis, it draws a rebound on H4 from the resistance at 1.1650 and a decline to the horizon at 1.1565. On D1, naturally, the oscillation span is greater: first, a fall to 1.1500, and then an increase to 1.1740.
    Of the important macroeconomic events next week, they are expecting: July 27 - the publication of data on the US consumer market, July 29 - the Fed's decision on the lending rate and a press conference of its management (according to forecasts, the rate will remain unchanged at 0.25%),  the data on the GDP of Germany and the United States will be released on July 30, and the week and month will end on July 31 with the publication of the data on the consumer market and GDP of the Eurozone, as well as on retail sales in Germany. Note that, according to forecasts, the fall in GDP (Q2) in the United States may reach -35%, which is 7 times more than the previous value (-5%);

  • GBP/USD.Both the euro and the pound” - this is what the forecast for the GBP/USD pair looks like this week. Just like in the case of EUR/USD, 45% of experts vote for a downward reversal of the pair, 35% for a sideways trend, and 20% for further growth of the pair. Indicators have a similar picture: 100% of trend indicators and 75% of oscillators look up, and the remaining 25% give signals that the pair is overbought.
    It should be borne in mind here that on July 24, the pair almost reached the high of June 10, 1.2810, thus completing a seven-week V-shaped cycle. Therefore, the probability of a downward correction is now quite high. The target for the bears may be a return to the 1.2480-1.2670 zone, the nearest support is at 1.2715. If the pair, having broken through the resistance of 1.2810, nevertheless goes further upward, its targets will be the levels 1.3020, 1.3070 and 1.3200;
  • USD/JPY. As mentioned above, this pair has not left the side corridor 106.00-108.10 for 15 weeks. However, on Friday, July 24, it broke through its lower border and dropped to 105.65. True, then it turned around and finished the last five days in the area of 106.00. So, what was it: a false breakthrough, a move to a new echelon or a serious trend sweep? We'll find out soon enough. In the meantime, the forecast for the Japanese yen looks like this: 60% of experts vote for the strengthening of the dollar and the return of the pair within the trading range of 106.00-108.10. The targets are 106.65, 107.50 and, of course, 108.10. The remaining 40% believe that investor interest in the yen, as a protective asset, will still outweigh interest in the dollar, and the pair will go further down. Supports are 105.65 and 105.00.
    As for indicators, their readings are largely like those of their “colleagues” on the euro and the pound, of course, in a mirror reflection. Colored red: on H4 - 85% of oscillators and 90% of trend indicators, on D1 - 70% of oscillators and 95% of trend indicators, and 15% of oscillators on H4 and 30% on D1 signal that the pair is oversold;

NordFX EU


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