Forex Forecast: Pairs in Focus

Adam Lemon

Get the Forex Forecast using fundamentals, sentiment, and technical positions analyses for major pairs for the week of January 11, 2021 here.

The difference between success and failure in Forex trading is very likely to depend mostly upon which currency pairs you choose to trade each week and in which direction, and not on the exact trading methods you might use to determine trade entries and exits.

When starting the trading 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 and market sentiment.

It is a good time to be trading markets right now, as there are many valid strong trends in favor of stocks and riskier assets.

Big Picture 10th January 2021

In my previous piece last week, I saw the most attractive trade opportunities as long of the S&P 500 Index and the GBP/USD and AUD/USD currency pairs. I also saw short-term trading opportunities long in Bitcoin (BTC/USD).

This was a great call as BTC/USD rose by an incredible 40% over the past week, while the GBP/USD currency pair closed down by 0.70% and the AUD/USD rose by 0.84%. The S&P 500 index rose by 1.02% so this call produced an averaged win of 10.29% with Bitcoin or 0.39% without Bitcoin.

Last week’s Forex market saw the strongest rise in the relative value of the Australian dollar and the strongest fall in the relative value of the Japanese yen. There is still a valid, long-term, strong trend against the U.S. dollar, meaning it is an attractive time to be trading Forex, as the greenback is the prime driver of the Forex market. However, last week saw the U.S. dollar rise slightly even as risky assets also rose, which is arguably an early sign that the U.S. dollar may stop falling over the short-term at least.

Fundamental Analysis & Market Sentiment

The headline takeaway is that we are seeing a continuing long-term positive trend in stock markets and in riskier commodity currencies such as the Australian, Canadian, and New Zealand dollars, plus a strongly negative trend in the U.S. dollar over the long term. Bullish sentiment has been improved by the passage of a new coronavirus stimulus bill in the U.S.

Last week saw the Democratic Party win control of the U.S. Senate, so within a few days this party will control the Presidency and both Houses of Congress, and their agenda will be more likely to be implemented. This means markets will expect still more stimulus and debt, which might be expected to weaken the U.S. dollar further, although it may dampen the U.S. stock market rally which is seeing major indices rise to new record high prices. The storming of Congress during the week has changed the political climate somewhat and will probably strengthen Democrats, but will not have any economic effects.

Last week again saw an increased but still relatively low level of volatility in the Forex market. There is likely to be a similar level of price movement over the coming week.

The major economic data release last week was the U.S. non-farm payroll data. This saw the number of net new jobs decrease by undershooting the target by approximately 200k new jobs, although average hourly earnings showed a strong increase and the headline unemployment rate fell from 6.8% to 6.7%. This data helped boost the U.S. dollar during the final hours of Friday’s session.

Global stock markets are very bullish, with several major indices closing at all-time weekly high closing prices, notably the S&P 500, the NASDAQ 100, the Dow Jones 30, the DAX, and the Nikkei 225.

Last week again saw a new record high in the number of daily confirmed coronavirus cases and deaths worldwide as the pandemic continues to advance despite the rollout of vaccination programs. The European Union has seen the number of new cases and deaths plateau, but both are rising strongly in the U.S.

The strongest growth in new confirmed cases is happening in Albania, Andorra, Argentina, Austria, Bahrain, Bolivia, Bosnia, Brazil, Canada, Chile, Colombia, Cuba, Czech Republic, Ecuador, El Salvador, Estonia, Finland, France, Georgia, Germany, Guatemala, Hungary, Indonesia, Ireland, Israel, Italy, Japan, Kosovo, Kuwait, Latvia, Lebanon, Lithuania, Malaysia, Mali, Malta, Mexico, Monaco, Mongolia, Montenegro, Niger, Nigeria, Norway, Panama, Paraguay, Poland, Portugal, Romania, Senegal, Slovakia, Slovenia, South Africa, Spain, Sweden, Tunisia, Uruguay, the U.K., the U.A.E., and the U.S.A.

Several countries have begun vaccination programs. Israel has vaccinated over 19% of its population (including 70% of over-60s) with a first dose of the Pfizer vaccine. The U.A.E. is next with over 10% of its population vaccinated.

Technical Analysis

U.S. Dollar Index

The weekly price chart below shows the U.S. Dollar index printed a bullish semi-doji candlestick last week, after making its lowest weekly close in more than 2.5 years the previous week. This weekly doji suggests that the dollar may now be due a bullish retracement against the strong, long-term bearish trend. Overall, next week’s price movement in the U.S. dollar looks marginally likely to be upwards or at least indecisive. However, this is a relatively good time to be trading the U.S. dollar short, so I am focusing only on trades which are short of the U.S. dollar.


US Dollar Index Weekly Chart

S&P 500 Index

The S&P 500 stock market index ended the week at an all-time weekly high closing price, which is a very bullish sign, as was its close very near the top of its weekly price range. Volatility was not especially high, in fact it was a little on the low side, meaning that although odds are with the bulls, the price may be due a sudden bearish retracement. Rising stocks are supported by positive risk sentiment as we start the new year of 2021. We are likely to see higher prices here over the coming week and the NASDAQ 100 Index is in a similarly strong position as the market rally has tended to be led by technology stocks. There are several major stock market indices worldwide which ended the week at record highs.

S&P 500 Index Weekly Chart

BTC/USD

Bitcoin has again made a huge parabolic bullish leap into blue sky as it trades at new all-time high prices well above the big psychological round number at $40,000. It has risen in value by 40% in the last week alone. It is clearly rising due to a huge speculative bubble on very high volatility which is likely to burst, but there is a good chance the price will continue to advance for a few more days at least, especially as it has continued to rise into 2021. Therefore, there are likely to be short-term long trading opportunities here for a while longer, but they should be monitored carefully, and Bitcoin should be traded with very small position sizing.

BTC/USD Weekly Chart

Bottom Line

I see the best likely opportunity in the financial markets this week as long of the S&P 500 Index. I also see short-term trading opportunities long in Bitcoin (BTC/USD) until the current bubble finally bursts.

Adam Lemon

Adam Lemon began his role at DailyForex in 2013 when he was brought in as an in-house Chief Analyst. Adam trades Forex, stocks and other instruments in his own account. Adam believes that it is very possible for retail traders/investors to secure a positive return over time provided they limit their risks, follow trends, and persevere through short-term losing streaks – provided only reputable brokerages are used. He has previously worked within financial markets over a 12-year period, including 6 years with Merrill Lynch.
Learn more from Adam in his free lessons at FX Academy

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