The difference between success and failure in Forex / CFD trading is highly likely to depend mostly upon which assets you choose to trade each week and in which direction, and not on the exact methods you might use to determine trade entries and exits.
So, when starting the week, it is a good idea to look at the big picture of what is developing in the market as a whole, and how such developments and affected by macro fundamentals, technical factors, and market sentiment. There are several strong long-term trends in the market right now, which might be exploited profitably.
Read on to get my weekly analysis below.
Fundamental Analysis & Market Sentiment
I wrote in my previous piece on 9th July that the best trade opportunities for the week were likely to be:
- Long of the USD/JPY currency pair following a firm bullish bounce at ¥141.22. This did not set up.
- Long of Bitcoin after a daily close above $31k if a major Bitcoin ETF was approved. This did not set up.
- Long of the NASDAQ 100 Index following a daily close above 15297.2. This set up on Wednesday with a close of 15334.6, ending the week up from there by 1.54%.
- Long of the GBP/USD currency pair. This ended the week higher by 1.98%.
My forecast produced an overall loss of 3.52%, averaging a win of 0.88% per highlighted asset.
Market sentiment is completely dominated by the lower-than-expected US CPI (inflation) data, which was released last week, showing a fall in the annualized rate from 4.0% to 3%, below the 3.1% which was expected. The monthly change was an increase of 0.2%, lower than the 0.3% which was expected.
Although the US Federal Reserve is still expected to hike rates by 0.25% at its next meeting, the consensus for that has lowered, and there is more expectation that the next hike will reach the terminal rate within the current tightening cycle. This was reflected in a post-release fall of the 2-year treasury yield.
The data immediately triggered a strong selloff of the US Dollar, which had already been falling in line with a developing long-term bearish trend, and sharp rises in stock markets and in some commodities. Risk sentiment has improved considerably, and markets are unquestionably in risk-on mode, which is usually a good opportunity to make money.
The low inflation data was reinforced by lower-than-expected US PPI data released later in the week, which saw only a 0.1% month-on-month increase, where an increase of 0.2% was expected.
The other major items were the 0.25% rate hike by the Bank of Canada, which strengthened the Canadian Dollar although it was expected, and the pass on a hike by the Reserve Bank of New Zealand, which was also expected.
Markets are likely to begin this week in the same risk-on condition which prevailed at the end of last week.
Last week’s other key data releases were:
- UK GDP – this came in higher than expected, showing a month-on-month decline of 0.1% when a decline of 0.3% was expected, which may have helped the Pound strengthen.
- US Preliminary UoM Consumer Sentiment – this came in higher than expected, suggesting a still-robust US economy.
- UK Unemployment Claims (Claimant Count Change) – this came in very slightly higher than expected.
The Week Ahead: 17th July – 21st July
The coming week in the markets is likely to see a slightly lower level of volatility than last week, as there will be fewer key data releases scheduled. This week’s key data releases are, in order of importance:
- Chinese GDP and Industrial Production
- US Retail Sales
- Canadian CPI (inflation)
- UK CPI (inflation)
- US Empire State Manufacturing Index
- Reserve Bank of Australia Monetary Policy Meeting Minutes
- New Zealand CPI (inflation)
- US Unemployment Claims
- Australian Unemployment Rate
Monday will be a public holiday in Japan.
Technical Analysis
US Dollar Index
The weekly price chart below shows the U.S. Dollar Index printed an unusually large bearish candlestick last week. The weekly fall was the biggest seen since last November and takes the price to a new 15-month low.
The price closed not far from the low of its range, which suggests bearish momentum. However, it is worth noting that the price rebounded a bit on Friday. Having said that, the Dollar looks unquestionably bearish and is in a strong long-term bearish trend with the price making a major breakdown, backed strongly by market sentiment.
I think it will make most sense to trade the US Dollar short over the coming week, with high confidence.
NASDAQ 100 Index
Last week saw quite a firm rise in the price for the NASDAQ 100 Index after the previous week saw a bearish retracement within the strong long-term bullish trend. Stock markets got a boost from the low US inflation data and the NASDAQ 100 was a particular beneficiary.
The price finally seems to have decisively cleared the former resistance level at 15156.2 which will now be likely to function as support.
We see very strong bullish momentum, with the price reaching a new 18-month high after having risen by more than 40% this calendar year alone. This, as well as the absence of any clear resistance levels close by, suggests we will likely see still higher prices here.
The only note of caution for bulls should be the failure to close decisively higher on Friday, which is not much to worry about.
The NASDAQ 100 Index remains a buy.
EUR/USD
The EUR/USD currency pair rose strongly last week to make its highest weekly close since February 2022, and the week’s price action also made a new 16-month high price.
While we have seen the Forex market driven by a selloff in the US Dollar, the Euro is also showing relative strength, and rose against its closely correlated counterparty the British Pound last week.
Last week’s rise was the strongest seen since last November, and there is little upper wick.
While the technical picture looks very bullish, there are key resistance levels nearby, and this currency pair loves to make deep pullbacks, so it may be better to wait for a retracement and a bullish bounce before entering a new long trade here.
This pair will be attractive to trend traders now on the long side, as it has tended to trend reliably.
GBP/USD
The GBP/USD currency pair rose strongly last week to make its highest weekly close since March 2022, and the week’s price action also made a new 15-month high price.
As we see strong bearish momentum in the US Dollar, despite the fact that the Euro is stronger than the Pound, I think there is a good opportunity to enter a long trade here but only after a fresh bullish breakout.
I want to see a daily close above $1.3142 with the closing price within the top quarter of the day’s range before entering a new long trade in this currency pair.
USD/JPY
The USD/JPY currency pair fell again last week, quite strongly. The Japanese Yen was the strongest gainer of any major currency against the US Dollar, putting this pair in focus, which had made a long-term high just above ¥145 very recently. This relative strength in the Yen is probably due to the fact that the Bank of Japan is finally starting to unwind their ultra-loose monetary policy which made the Yen weak for a long time.
We see short-term bearish momentum in the greenback, which is likely to continue, so I expect that the price here will continue to fall. However, I am not attracted to trading this pair, as it is not within a well-established technical long-term trend and is nowhere near trading in “blue sky” unlike other short Dollar currency pairs like the EUR/USD, GBP/USD, or USD/CHF.
USD/CHF
The USD/CHF currency pair fell very strongly last week, making its biggest weekly drop since November last year.
The price is trading well into blue sky, reaching levels not seen since the Swiss Franc crisis of 2015. The low from that year, which saw a strong bullish rebound, is in sight.
It is notable how the Swiss Franc, which historically tends not to fluctuate by a lot, has lost more than 15% of its value against the Dollar just within the past few months.
I do not like to trend trade the Swiss Franc, as its trends have historically been very unreliable. However, no analysis of the Forex market now is complete without noting the great recent strength in the Swiss Franc.
Cocoa
The price of Cocoa has been advancing strongly for a long time – since October 2022 – with a firm and predictable bullish trend. The price has risen by approximately 50% during this period, which is a large rise.
The Cocoa futures price chart below shows a linear regression analysis study applied to the trend since October, showing the price action is very predictable and has remained within the regression channel. This is suggestive of a persistent trend.
The price rose last week but did not make a new significant high price. However, this is a consolidation and a bullish breakout from this range could be a good signal to enter a new long trade.
There is strong global demand for cocoa and problems with some crops in Africa which are helping to drive the price higher.
I am ready to enter a new long trade if we get a daily close here above 3414.
Bottom Line
I see the best trading opportunities this week as:
- Long of the NASDAQ 100 Index.
- Long of the EUR/USD currency pair.
- Long of the GBP/USD currency pair following a daily close above $1.3142 with the close in the top quarter of the day’s range.
- Long of CC1! Cocoa Future following a daily close above 3414.
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