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February 6, 2021

First, a review of last week’s events:

  • EUR/USD. The dollar has been growing throughout the week, fueled by optimism about the imminent recovery of the US economy. The incidence of coronavirus is down sharply: in just three weeks since the peak, the 7-day moving average has dropped by almost 50%. And a successful vaccination, complete with a new economic aid package, can generally lead to an economic boom in the country.
    And that is where the confusion begins, which has puzzled many economists. With the outbreak of the pandemic at the end of last February, an inverse correlation has clearly emerged between the dollar and stock indices. After an initial sharp collapse, thanks to fiscal incentives (QE), lower interest rates and pumping the US economy with cheap money, stock indices, S&P500, Dow Jones, Nasdaq, went up, and the DXY dollar index went down.
    And here came 2021, and everything turned upside down. Against the backdrop of good economic data and expectations of a new injection of financial "vaccine" for almost $2 trillion, the growth of risk sentiment and stock indices continued. But in parallel, the yield of long-term US Treasury bonds and the dollar grew.
    “But it shouldn't be that way,” many experts exclaim. A soft monetary policy and pumping liquidity into the market should lead to a weakening of the currency, but not vice versa. Or maybe it's not the dollar's strength at all, but the weakness of its competitors? First of all, the euro?
    Starting on Monday at 1.2135, the EUR/USD pair groped the local bottom at 1.1950 on the morning of Friday 05 February, breaking through 1.2000 support for the first time in 10 weeks. After that, the correlation between the stock market and the dollar once again changed its sign, from plus to minus this time: the S&P500 continued to grow, while the DXY began to fall. As a result, the EUR/USD pair went up again and finished the five-day period at 1.2050;
  • GBP/USD. We predicted that at its meeting on Thursday 04 February, the Bank of England would leave both the volume of bond purchases of £895bn and the interest rate at 0.1% unchanged. And so it happened, no changes in monetary policy took place. But at the same time, in just a couple of hours the pound has strengthened sharply against the dollar, jumping up 135 points, from 1.3565 to 1.3700.
    The whole point was not in the results of the meeting of the Bank, but in market expectations. The Bank's committee unanimously decided to leave key parameters of its policy unchanged. Some investors expected that a split in the ranks of the Committee would happen, and that a number of its members would support the introduction of negative rates. The split did not occur, the result of the vote was 9:0.
    A negative rate, no doubt, would have led to a collapse of the pound, but the situation was saved by the optimism of officials regarding the growth of the UK economy. In their opinion, thanks to vaccination, the country's GDP will reach pre-COVID indicators during the current year, and the consumer price index will rise to 2% at the beginning of 2022.
    The Bank of England's unanimous decision to abandon negative rates for the near future should encourage capital inflows into the country. And this was clearly demonstrated by the GBP/USD pair, which continued its growth on Friday February 05, and ended the weekly session at 1.3735;  
  • USD/JPY. The movement of this pair in most cases depends on what is happening not in Japan, but in the United States, on where the DXY dollar index, stock indices, as well as the yield of American state bonds are moving. This happened last week as well.
    Back on January 27, the pair broke through the upper border of the medium-term descending channel, along which it had been descending since the end of last March and went up sharply. And although the overwhelming majority of oscillators and trend indicators on both Η4 and D1 indicated an uptrend, only 30% of experts voted for further growth among analysts. But it was their forecast that turned out to be absolutely accurate: at the high on Friday, February 05, the pair reached a height of 105.75, after which a correction followed and then a finish at 105.35;

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 far, the situation seems to be still in favor of the dollar. In anticipation of the explosive growth of the US economy, investors are ready to turn a blind eye to another increase in the country's national debt, which will follow the next package of economic stimuli. The yields on long-term treasuries are growing, and the spread between US and European bonds is growing, strengthening the dollar, and putting pressure on the European currency. Thus, the yield of 10-year American state bonds has already reached about 1.15%, and the growth potential has not yet been exhausted. Here you can also recall the statements of Christine Lagarde that the ECB is not at all against the weakening of the euro.
    The above has led to the fact that 70% of experts, supported by 85% of oscillators, 70% of trend indicators and graphical analysis on D1, agreed that the dollar will continue to grow in the coming days, and the EUR/USD pair to fall. Support levels are 1.1950, 1.1885, 1.1800 and 1.1750. However, the situation is changing with the transition from weekly to monthly forecast and here it is already 60% of experts together with graphical analysis who are waiting for the pair to return to the zone 1.2200-1.2300. The target is the January high of 1.2350, the nearest resistance is 1.2175.
    As for important economic events in the coming week, we can note data on consumer markets in Germany and the United States, which will be released on Wednesday February 10;

Forex Forecast and Cryptocurrencies Forecast for February 08 - 12, 20211

  • GBP/USD. Will the market still be able to maintain its bullish optimism about the British currency for some time? 65% of analysts believe that at least briefly the pair will still succeed, breaking through the resistance of 1.3750, to rise to the height of 1.3800, and possibly 25-50 points higher. Graphical analysis, 85% of oscillators as well as 100% of trend indicators on H4 and D1 agree with this. However, 15% of oscillators are already giving clear signals about the pair being overbought.
    The remaining 35% of experts consider the 1.3700-1.3750 zone as an insurmountable obstacle, according to them, having broken through the support at 1.3700, the pair will first go down 100 points and then reach the 1.3485-1.3500 zone.
    Among the events to which attention should be paid, of interest are the speech of the head of the Bank of England, Andrew Bailey on Wednesday, February 10, and the publication of GDP data for the IV quarter of 2020 on Friday, February 12;
  • USD/JPY. Most experts (70%) supported by graphical analysis on D1, 75% of oscillators and 80% of trend indicators, expect the pair to continue to grow at least up to 106.00-106.25 zone. The next goal is 107.00. The nearest resistance is 105.75.
    The remaining 30% of analysts believe that the pair will return to the level of 104.00, and graphical analysis on H4 predicts an even greater drop, to the low of January 21, 103.30. Supports are at 104.75, 104.00 and 103.50 levels.

NordFX EU


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