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 some 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 25th June that the best trade opportunities for the week were likely to be:
- Long of the USD/JPY currency pair. The pair rose by 0.40% over the week.
- Long of Bitcoin after a daily close above $31k. This did not set up.
- Long of the NASDAQ 100 Index after a daily close above 15156.2. This did not set up until the weekly close on Friday.
My forecast produced an overall quantifiable win of 0.40%, averaging a win of 0.13% per highlighted asset.
When markets open for the week later, they are likely to be focused on last Friday’s rally in stock markets and the strong US economic data that was released towards the end of last week. Last Thursday saw the release of US Final GDP data, which was expected to show the economy growing at an annualized rate of 1.4%, but came in considerably higher at 2%, suggesting that the US economy is performing better than expected. This was in addition to strong consumer confidence data released earlier in the week.
Friday’s release of US Core PCE Price Index data, a key indicator of the likely pace of inflation, came in at a month-on-month increase of 0.3% as expected, suggesting no surprises on the inflation front.
Thursday’s data originally saw stock markets selling off as the stronger growth suggested the Fed might have to take a slightly more hawkish tilt, but by Friday these fears dissipated and produced a broad stock market rally that, in the US, was the widest seen in months. Fed member Goolsby said he is undecided on a rate hike next month. The S&P 500 Index made its highest weekly close in 15 months and the NASDAQ 100 Index made its highest weekly close in 13 months.
Last week’s other major stories in the market were the release of German Preliminary CPI (inflation) data which came in at a monthly increase of 0.3% as expected, and the continuing weakness of the Japanese Yen with speculation that the Bank of Japan would begin to intervene when the USD/JPY currency pair reached ¥145, which happened Friday.
Last week’s other key data releases were:
- Canadian CPI (inflation) – came in as expected at a 0.3% month-on-month increase, but some of the underlying metrics were lower.
- Canadian GDP – this came in worse than expected, showing no growth, when a month-on-month increase of 0.2% was expected.
- Australian CPI (inflation) – this showed a stronger-than-expected fall, from an annualized rate of 6.8% to 5.6%, triggering a selloff in the Australian Dollar.
The Week Ahead: 2nd July – 6th July
The coming week in the markets is likely to see a somewhat higher level of volatility to last week, as there will be one central bank policy meeting, plus the release of US non-farm payrolls and average earnings data. This week’s key data releases are, in order of importance:
- US Average Hourly Earnings
- US Non-Farm Employment Change
- US FOMC Meeting Minutes
- US JOLTS Jon Openings
- US ISM Services & Manufacturing PMI
- US Unemployment Rate
- RBA Cash Rate & Rate Statement
- Swiss CPI (inflation)
- OPEC Meetings
- Canadian Unemployment
Tuesday will be a public holiday in the USA, while Monday is a public holiday in Canada.
Technical Analysis
US Dollar Index
The weekly price chart below shows the U.S. Dollar Index printed an indecisive doji candlestick last week.
The Dollar is clearly going nowhere and stands priced in the middle of quite a long-term consolidation. The price is higher than it was 3 months ago but lower than it was 6 months ago, indicating the absence of any long-term trend.
All the indications point to indecision in the Dollar and this week probably won’t see a change in that unless the US jobs and earnings data due at the end of the week brings a really major surprise.
I think it will make most sense to focus on opportunities in other currencies over the coming week instead of the US Dollar, such as the weak Japanese Yen.
NASDAQ 100 Index
After last week saw the first fall after eight consecutive weeks of gains, we saw a rise in the NASDAQ 100 Index over the past week, with the price finally closing Friday after a strong rally above the resistance level which I had identified at 15156.2 as shown within the below price chart.
This suggests a bullish breakout has just taken place, although volume was not very strong, and the long-term picture looks very bullish, with the market running away to the upside and having already risen by about 40% this calendar year, showing strong bullish momentum.
Summer seasonality tends to see stock markets drift or decline, but now it seems that the key resistance level at 15156.2 is broken, I see the index as a buy. If the price quickly falls below that level and does not bounce back very quickly, that will indicate a failed bullish breakout.
USD/JPY
The USD/JPY currency pair again rose last week to make its highest weekly close in 7 months, but it is worth noting both the substantial upper wick in the weekly candlestick, which is shown within the price chart below, and the fact that the price briefly touched a high just above the key round number at ¥145 before retreating and printing a lower resistance level.
These factors suggest that the price may now have made an intermediate high and the bullish trend could be due a pause.
The US Dollar is doing nothing, but the Japanese Yen has been weakening due to the Bank of Japan’s ultra-loose monetary policy which has become increasingly divergent from the monetary policies of other major central banks.
As a trend trader in major currency pairs, I am long of this currency pair and want to remain long. However, I would avoid entering any new trade until we see a daily close above ¥145.
EUR/JPY
The EUR/JPY currency cross rose last week to reach another 14-year high price.
Before trend traders get overly excited, it is important to keep in mind that this says much more about the weak Japanese Yen than about the Euro, although the Euro was one of the strongest major currencies last week.
Although the USD/JPY currency pair trends more reliably than this currency cross, the Euro is prone to trending, and we do see the price here trading well into the blue sky.
If you want to bet on Yen's weakness over the medium to long term, it could be an idea to use a mix of stronger currencies, which could include the Euro.
Anyone trading the Japanese Yen right now should keep in mind that the USD/JPY currency pair reached ¥145 on Friday and fell off from there – this level has been the subject of much speculation concerning potential intervention from the Bank of Japan, so it seems to have become quite a solid resistance barrier, which may limit further gains against the Yen.
GBP/JPY
The GBP/JPY currency cross rose last week to reach another 7-year high price.
Before trend traders get overly excited, it is important to keep in mind that this says much more about the weak Japanese Yen than about the Euro, although the Euro was one of the strongest major currencies last week.
Although the USD/JPY currency pair trends more reliably than this currency cross, the Euro is prone to trending, and we do see the price here trading well into blue sky.
If you want to bet on Yen weakness over the medium to long-term, it could be an idea to use a mix of stronger currencies, which could include the British Pound.
Anyone trading the Japanese Yen right now should keep in mind that the USD/JPY currency pair reached ¥145 on Friday and fell off from there – this level has been the subject of much speculation concerning potential intervention from the Bank of Japan, so it seems to have become quite a solid resistance barrier, which may limit further gains against the Yen.
Bitcoin
After the previous week’s strong bullish Bitcoin consolidated quietly below the key resistance level very confluent with the round number at $31k.
This could be taken to be either bullish or bearish, but for now, we have no decision. The price action is equally suggestive of a further breakout, or of a major bearish reversal. Whatever happens, it does look likely that Bitcoin has arrived at a pivotal point.
Odds in favor of a reversal may be a bit higher, as the earlier rise was partly triggered by the increasing likelihood of regulators approving Bitcoin ETFs in the USA, but the SEC has just expressed some caution about this, which may push the price down.
If Bitcoin ETFs start to look more realistic and regulators soften their stance, and we get a daily close above $31k, I will see Bitcoin as a buy, as the price will have room to rise as high as $33,445 before meeting any key resistance levels.
Cocoa
The price of Cocoa has been advancing strongly for a long time – since October 2022 – with a strong 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 can be suggestive of a persistent trend.
The price rose strongly last week and closed very near the high of its range, so we see indications of bullish momentum. However, it may be wise to wait for a consolidation and bullish breakout before entering a new long trade so as not to “catch a falling knife”.
There is strong global demand for cocoa and problems with some crops in Africa which are helping to drive the price higher.
Bottom Line
I see the best trading opportunities this week as:
- Long of the USD/JPY currency pair following a daily close above ¥145.
- Long of Bitcoin after a daily close above $31k.
- Long of the NASDAQ 100 Index.
Ready to trade our Forex weekly analysis? We’ve shortlisted the best Forex trading brokers in the industry for you.