The difference between success and failure in Forex trading is very likely to depend upon which currency pairs you choose to trade each week, and not on the exact trading methods you might use to determine trade entries and exits. Each week I am going to analyze fundamentals, sentiment and technical positions in order to determine which currency pairs are most likely to produce the easiest and most profitable trading opportunities over the next week. In some cases, it will be trading the trend. In other cases, it will be trading support and resistance levels during more ranging markets.
Big Picture 15th March 2020
In my previous piece last week, I forecasted that the best trades were likely to be short of the USD/JPY and USD/CHF currency pairs. Over the week, USD/JPY rose in value by 2.49% and USD/CHF by 1.46% so these were losing trades.
Last week’s Forex market saw the strongest rise in the relative value of the U.S. Dollar, and the strongest fall in the relative value of the Australian Dollar.
Fundamental Analysis & Market Sentiment
The world is not coming to an end, but we are living in an extraordinary time of a global heath crisis, the type of which has not been seen in one hundred years. There is a great deal of fear and panic, but it is important to remember that the evidence shows that the vast majority of people are going to be OK.
In time such as these, it is extremely difficult to make market forecasts, as the crisis can change focus day by day, strongly affecting sentiment and market movements.
We have seen the epicenter of the global pandemic move into Europe, with Italy, Spain and France severely affected, and several countries now imposing measures of semi-lockdown.
Almost all stock markets are now in technical bear markets (decline of more than 20% from peak). However, sentiment on the U.S. improved on Friday as President Trump announced new measures to attempt to deal with the crisis. This saw the U.S. stock market bounce back and also saw the U.S. Dollar rise, as feeling had been growing that the Trump administration was not responding appropriately to the growing crisis.
It is clear that this crisis will enforce severe economic restrictions in all affected countries which will need to last for several weeks or even months. The only given is that stock markets and GDP generally will take severe hits. We have already seen emergency rate cuts in a few countries and there may be more ahead. The stock market crash we are seeing is comparable to 2008 and even 1929 so far.
It seems clear that we will see a continued level of high market volatility. Prices are likely to depend upon how the U.S.A. and European nations cope with the spread of the virus, and whether there are any signs of successful containment as we seem to have seen in China, South Korea, Singapore, and Hong Kong.
Technical Analysis
U.S. Dollar Index
The weekly price chart below shows last week printed a very large bullish outside candlestick which closed very near the high of its range. It made a new 3-year high price. Overall, it seems likely that the U.S. Dollar will rise further over the coming week.
GBP/USD
The GBP/USD currency pair fell very strongly, closing below its prices from both 3 and 6 months ago, cutting through several support levels and closing near the low of its range. This was the biggest weekly move made by the Pound since the Brexit vote, and it is driven mainly by a perception that the U.K. government is attempting a strategy to fight the coronavirus pandemic which differs from that taken by most other similarly afflicted nations. It looks likely that the price will fall further over the course of next week, but it may of course begin to rebound at some level. Volatility is very high.
DAX
The German stock market index fell sharply and ended at its lowest weekly close in three and a half years. It is down by more than 30% from its all-time high made just four weeks ago. We may see a bullish bounce with high volatility, but the worsening situation in the Eurozone and the increasingly strict economic measures being taken by Eurozone governments means that any bullish retracements will be likely to be good selling opportunities over the coming week.
Conclusion
This week I forecast the best trade is likely to be short of the GBP/USD currency pair and short of the DAX 30 stock market index.