Weekly Outlook: 6/7/21 - 6/11/21
Are you ready for another week of trading?
Let’s take a quick look at what happened last week before we start preparing for this second week of June.
What happened last week?
Last week, fundamentals guided the market. Indeed, during the first part of the week, most pairs consolidated. They did not really find their direction until the big economic announcements on Thursday and Friday impacting the USD. The movements then came in two parts, which we will now examine.
On Thursday, the first big news of the week for the USD shook the market. Of the 4 economic news items in total, 4 were excellent and even better than the market expected:
– ADP Non-Farm Employment Change: 978k vs 645k expected (‘Actual’ greater than ‘Forecast’ is good for currency)
– Unemployment Claims: 385k vs 400k expected (‘Actual’ less than ‘Forecast’ is good for currency)
– ISM Services PMI: 64.0 vs 63.0 expected (‘Actual’ greater than ‘Forecast’ is good for currency)
– Crude Oil Inventories: -5.1M vs -1M expected (‘Actual’ less than ‘Forecast’ is good for currency)
The consequence on the markets was direct: the dollar soared as all the news was better than expected. Optimism had risen, and traders were all expecting an explosive NFP (Friday, the next day) for the dollar in light of the latest very reassuring economic news. However, even though the crowd was getting excited about the dollar, one should not forget the very mechanism of fundamentals and their impact on the market. In reality, it is not so much the numbers that matter in the short term, but rather whether or not they are in line with market expectations. If the market expects an exceptionally good NFP and the NFP is mixed, it will have the same impact as a very bad NFP on the dollar. Why? Because the market was not expecting the news, and therefore corrects previous moves in anticipation of the news.
On Friday, what was supposed to happen, happened. While most traders were expecting an exceptional NFP for the dollar and a big rise in the USD, the latter literally fell under the pressure of optimism destroyed by mixed economic results. The NFP results were not so bad, but market expectations were too high for mixed results. The dollar fell, and totally corrected the previous day’s bullish moves, destroying optimism in a matter of hours.
Here are the mixed results from the NFP:
Average Hourly Earnings: 0.5% vs. 0.2% expected (‘Actual’ greater than ‘Forecast’ is good for currency)
Non-Farm Employment Change: 559K vs 645k expected (‘Actual’ greater than ‘Forecast’ is good for currency)
Unemployment Rate: 5.8% vs 5.9% expected (‘Actual’ less than ‘Forecast’ is good for currency)
Now that this update on the previous week has been made, let’s move on to next week’s analysis!
Looking ahead to next week: what moves should we be watching for?
EURUSD Technical Analysis: A bearish continuation despite the NFP?
From a technical point of view, the odds seem to be in favor of a bearish trend for EURUSD. After breaking and retesting its bearish channel, the price made an initial bearish move that was partially corrected with the loss of power of the USD during the NFP. EURUSD could then make a final retest of the resistance early this week to chase away sellers’ cash, perhaps to continue lower thereafter and make a real reversal.
NZDJPY Technical Analysis: A reversal ahead?
The price action is also showing bearish signs on NZDJPY. Initially, the cross pair made a fakeout from the bottom of its uptrend channel indicating clear buyer weakness. This fakeout took out buyers and sellers and was intended to chase cash before making the real bearish move on the next break of the trendline. Now, after the initial bearish impulse, the price could reject the support area turned resistance and perhaps continue lower in the coming days. Very nice bearish potential to watch!
SILVER Technical Analysis: A deeper retracement?
Silver has broken the uptrend and has already retested the resistance created at the breakout. Now the odds also look bearish and in favor of a possible deeper retracement in the coming days. This week will again be dictated by the reaction of the dollar, which will be highly anticipated after the fall of the NFP!
Please note that these analyses are based on price action elements only and are in no way trading or investment advice.
Fundamentals to watch for this new trading week:
Wednesday, June 9th:
CAD – BOC Rate Statement. The BOC reviews its monetary policy, comments on the country’s economic situation and announces new interest rates.
Thursday, June 10th:
EUR – Monetary Policy Statement. The European Central Bank reviews its monetary policy, comments on the economic situation in the Eurozone and announces new interest rates
USD : CPI m/m + Core CPI m/m. These are important indicators of inflation.
Quote of the week – Psychological Preparation
“A journey of a thousand miles begins with a single step.” – Lao Tzu
The journey to profitability is a long one, full of pitfalls and different obstacles that you will have to overcome. Take this journey step by step, and focus on your ultimate goals to motivate you to overcome each test the markets will throw at you. Success is only possible through small efforts repeated with unwavering consistency, every day, over and over again. Get started and take your first steps. Fall down, get up, make mistakes, and learn again and again. Give yourself time to learn, and trading will give you back that time with interest.