Fundamental Analysis & Market Sentiment
I previously wrote on Sunday, July 21 that the best trade opportunities for the week were likely to be:
None of these trades set up. Meanwhile, last week’s key takeaways were:
There were a few other events last week which were of lower significance, such as:
The Week Ahead: July 29 – Aug. 2, 2024
The most important items over this coming week will be:
Monthly Forecast for July 2024
This month, I forecasted that the USD/JPY currency pair would increase in value. The performance of this forecast to date is as follows:
Weekly Forecast for Sunday, July 28, 2024
Last week, I made no weekly forecast, although the NZD/JPY currency cross experienced an unusually large directional price movement. I did not have faith that the price would revert over the week, so I provided no weekly forecast.This was a great call, as the NZD/JPY currency cross fell again.Last week, all the Japanese yen crosses (except the CHF/JPY pair) experienced unusually large directional price movement. I, therefore, think that next week is likely to see rebounds in all of these crosses. This suggests that the next trading period will see good long trade opportunities and price advances in:
Directional volatility in the Forex market rose over the last week, as 52% of the most important currency pairs fluctuated by more than 1%. Over this period, the Japanese yen was the strongest major currency, while the Australian dollar was the weakest.
Key Support/Resistance Levels for Popular Pairs
Technical Analysis – US Dollar Index
The US Dollar Index printed an indecisive doji candlestick last week, with almost all the price action occurring between the new support level at 103.71 and the older resistance level at 104.15. This is a sign of indecision, as although the latest support is bullish, the fact that the price has been unable to escape above 104.15 is a sign that this zone of resistance is still holding.The greenback has no long-term trend: it is above its price of three months ago, but below its price of six months ago, showing mixed trends. This adds to the picture of indecision and choppiness here.If the US dollar can establish itself above 104.15 over the coming days, that would be a bullish sign and likely a signal to stop trading the dollar short. On the other hand, if it establishes itself below 103.71, that would be a bearish sign.The dollar will probably come to life later in the week when the Fed’s policy meeting is held, but in the meantime, the Forex action will likely focus on the volatile Japanese yen.
EUR/USD
The EUR/USD currency pair came off a three-month high price it made two weeks ago and closed lower at the end of last week. However, the bearish retracement has not yet been deep enough to knock long-term trend traders out of this trade.The price seems to have found support at $1.0833, but it has not risen above the resistance level at $1.0870. The past few days have seen the price consolidate weakly between these levels.The euro, the Swiss franc, and the British pound have held their value relatively well against a very strong Japanese yen and a firm US dollar, but there is not much to say about the euro right now. The policy meeting of the US Federal Reserve will probably most strongly influence this currency pair this week.I will enter a long trade if we see a daily close this week above $1.0939. However, the bullish outlook here is quite weak and unconvincing.
USD/CHF
I previously expected the USD/CHF currency pair to have potential resistance at $0.8923.The H1 price chart below shows how the price formed double inside bars, marked by the downward arrow, rejecting the resistance level just before last Tuesday’s London close.This trade could still be open, but it has been extremely profitable so far, giving a maximum reward-to-risk ratio of approximately 14 to 1.
AUD/JPY
The AUD/JPY currency cross fell extremely strongly last week to close lower by more than 4%. This is an unusually large price movement that has not been seen for months, possibly even years. It was a very bearish weekly candle, although there was a significantly lower wick, which suggests that the price may have found some support towards the end of the week.Although the Australian dollar traded significantly lower last week on declining risk appetite, the Japanese yen remains the real story. It enjoyed another week of dramatic strengthening, but by even more than the previous week’s strong advance. This is driven by anticipation that, at last, economic data is showing inflation sustained firmly above the 2% target, making a rate hike by the Bank of Japan this week extremely likely.Later this week, the Bank of Japan’s policy meeting injects a major element of uncertainty regarding the yen. The Bank may hike its interest rate.Although the price action can be seen as a bearish development, it is worth noting that such strong weekly directional movements in currency crosses tend to bounce back the next week. We already saw the price stop falling, and we may have found support towards the end of last week. Furthermore, almost all the yen crosses had similar outsized moves.Therefore, I expect this currency pair’s price to rise over the coming week.
S&P 500 Index
The S&P 500 Index fell again last week. The move down was reasonably strong, but nothing out of the ordinary. Most trend traders won’t be long here any longer despite the recent strong bullish run, as the price has retraced by more than three times the long-term daily average true range.Technology stock indices like the Nasdaq 100 have performed even more bearishly over the past week, suggesting that the stock market has made a rotational shift. Broader market investments now look likely to outperform leading technology stocks. Some major tech companies, such as NVIDIA, have seen massive drops over recent days.I think the best approach to stocks right now is to stand on the sidelines and wait to see if the bullish trend resumes, whether we see a deeper bearish retracement or just a consolidation.
Bottom Line
I see the best trading opportunities this week as follows:
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