Overall, next week’s price movement in the U.S. Dollar looks likely to be up.
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. Of course, the current market environment is mostly one of crisis, with price movements generally dominated by the perceived economic impact of the coronavirus pandemic. That is the dominant factor to consider in trading any market today.
Big Picture 3rd May 2020
In my previous piece last week, I forecasted that the best trade was likely to be long of Gold in U.S. Dollar terms following a daily close above $1730. This was a good call as after getting such a close last Thursday, the price ended the week up by 0.68% from the previous day, so that was this trade’s profit.
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 British Pound.
Fundamental Analysis & Market Sentiment
The world is not coming to an end, but we are living in an extraordinary time of global health crisis, the type of which has not been seen in one hundred years. There is both fear and optimism, but it is important to remember that the evidence shows that the vast majority of people are going to survive and be healthy.
We see the epicenter of the global coronavirus pandemic in South America and in the United States outside New York. Globally, the number of confirmed new cases daily seems to be increasing again and looks close to making a new all-time high. The rolling average of deaths and new cases has finally begun to decrease significantly in the U.S.A. as a whole and in the U.K., which has recorded more deaths than any other country in Europe. European nations are beginning to relax restrictions, as is the U.S.A. in a patchy way.
South America is now responsible for over 25% of confirmed new daily deaths, although the overall number globally continues to fall. Brazil is recording more deaths now than any other country except the U.S.A. The strongest exponential growth in new confirmed cases is happening in India, Russia, Brazil, Mexico, and Peru.
The U.S. stock market fell a little last week from the 61.8% Fibonacci retracement level of its peak to trough decline seen from February to March but found support at the 50% retracement level and arguably looked bullish at the weekly close. The market has been recovering bullishly at least partly due to the $2.2 trillion emergency stimulus package a few weeks ago and ongoing buying of U.S. stocks and other market instruments on a large scale by the Federal Reserve. However, important questions remain as to the sustainability of this rally even in the face of a huge drop in GDP and employment, which the U.S. economy is certain to suffer over the near term.
U.S. GDP shrank by 4.8% in the first quarter of 2020. U.S. unemployment nationwide is currently confirmed at 14.7%. New unemployment claims in the U.S. have hit 50 million over only the past two months. Inflation is negative, at -0.8%. Many analysts see this ongoing stock market rise as bound to collapse, and we may be approaching a pivotal moment where bears begin to dominate again.
It is clear that as many countries seek to relax coronavirus-related restrictions to get their economies moving again, they will be hoping to be able to keep relaxing to try to secure strong economic rebounds. The only given is that employment and GDP generally will take severe hits, with Goldman Sachs forecasting a 34% drop in U.S. GDP in the second quarter of 2020. The stock market crash we have seen was comparable to 2008 and even 1929 so far. In fact, the speed of the initial drop of 20% from the all-time high price took only 15 market days to happen, compared to 30 days in 1929.
It seems clear that we will see a continuing level of high market volatility, at least in the stock market.
We are also starting to see a few countries that have had relatively successful lockdown measures begin to relax restrictions on the belief they have successfully dealt with a first wave of infections. These are smaller nations such as Denmark, Norway, Austria, Denmark, Israel and the Czech Republic. However larger and severely impacted nations such as France, Spain, and Italy are also starting to significantly relax restrictions, and even the U.K. has eased up slightly.
Some states in the United States have also begun to relax restrictions, despite the fact that new confirmed cases are increasing in several states outside New York. Approximately 0.24% of the entire population of New York City has died from the virus in recent weeks, suggesting that the infection fatality rate truly is not far from 1% - although this is strongly disputed by many.
U.S. Dollar Index
The weekly price chart below shows last week printed a bullish candlestick which closed near its high, which was held up quite precisely by the support level at 12470 shown in the price chart below. There is a long-term bullish trend reflected in the fact that the price is higher over both 3 and 6 months, with volatility looking healthy. Overall, next week’s price movement in the U.S. Dollar looks likely to be up.
S&P 500 Index
The major U.S. stock market index the S&P 500 Index – the biggest market index in the world – printed a slightly bearish but overall indecisive candlestick last week. The price rejected the 61.8% Fibonacci retracement level at 2937 of the market’s recent peak to trough move but seems to be supported at the 50% retracement level. This price area between about 2900 and 3000 is highly likely to be pivotal, so a close at the end of this week above 2937 or 3000 would be technically significant and suggest that the recent low will not be revisited, and that the bullish market recovery would probably continue. Alternatively, a weekly close below 2800 could signify that a strong bearish move is finally beginning to happen.
The Gold weekly chart has printed a firmly bullish candlestick which broke out from the double inside candlestick formation, as I forecasted would happen last week. We have a long-term bullish trend, plus a new 7.5 yeah high price, both of which are bullish signs. I expect the price will rise further over the coming week, so I would wait for a daily (New York close) above $1742 an ounce before entering any long trade but I will be very happy to enter a long trade if it sets up.
This week I forecast the best trade is likely to be long of Gold in U.S. Dollar terms following a daily (New York) close above $1742 per ounce.