Pairs in Focus – NASDAQ, EUR/USD, USD/JPY

Get the Forex Forecast using fundamentals, sentiment, and technical positions analyses for major pairs for the week of July 24, 2022 here.

The difference between success and failure in Forex / CFD trading is very 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. Read on to get a weekly analysis below.

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Fundamental Analysis & Behavioral Sentiment

Although the U.S equity indices did rather well last week, they in fact did end Friday’s trading on a down note as they sank in prices before going into last weekend. This result may reignite alarm bells for nervous speculators who believed a buying trend was emerging.

The NASDAQ, EUR/USD and USD/JPY will all get plenty of attention this coming week because of fundamentals and behavioral sentiment. Commodity prices will also prove intriguing due to weather considerations:

• The NASDAQ Composite did finish last week with gains overall, but it did show signs of nervous selling as the week closed.
• This week’s coming important U.S Federal Reserve monetary policy announcement and expected interest rate hike on Wednesday, besides GDP and inflation data to finish the coming week will prove critical.
• The USD/JPY did produce choppy conditions last week as it moved within sight of 138.910, but finished the week near 136.060 after selling was sparked.
• The EUR/USD did climb last week, achieving a high near the 1.02780 mark, but ended the week near 1.02145.
• Wheat moved to a high of approximately 840.00 briefly, but closed near 755.50 via CME pricing and highlights fast conditions in commodities.

The Week Ahead: 25th July – 29th July 2022

NASDAQ Composite trading results saw losses produced on Friday, but this was after a week of rather strong gains. Earning season is upon us and the results from technology companies are being scrutinized closely.  More corporate reporting will come this week.

Advertising dollars for social media is under pressure as companies look at users and spending with skeptical eyes. Consumers face problems regarding the amount of money they have to splurge on services, which can be viewed as a non-essential. U.S stock markets have certainly been in a long term bearish trend and Friday’s results were a reminder.

Last week’s positive results may be enough to entice some speculative buying again, but traders should be careful. Timing the trend is a dangerous task and this week’s coming Federal Reserve policy and U.S economic data combinations could spell trouble. Volatility should be expected this coming Thursday and Friday particularly.

Conservative traders may want to remain observant and simply watch the results. Traders who have the emotional strength to sell the NASDAQ Composite or other indices will have tough decisions to make too. Choppy conditions will prevail. Risk management will prove essential this coming week.

Important Monetary Policy and Data on Schedule for Last Trading Week of July

The U.S Federal Reserve is expected to raise their key interest rate by another 0.75% this coming week on Wednesday. If this move is confirmed it would raise the key lending rate to 2.50%. However, this news has largely been digested by financial institutions and speculators.

A move lower than 0.75% would be a surprise, but is unlikely to happen. U.S inflation has started to show signs of slowing in some regards, but additional key data will come on Thursday and Friday this week via the Advance GDP and the Core Personal Consumers Expenditures numbers.

What financial houses and traders want clarity on is the outlook of the U.S Federal Reserve regarding interest rate policy for the months ahead. While an interest rate hike to the 2.50% is considered nearly a sure thing, the question is how much more the Fed will hike in the future.  Answers to those questions are not clear, particularly considering inflation and U.S GDP numbers remain problematic trying to discern.

The Fed certainly would not like to spark a recession, but if consumer prices continue to climb the purchasing of goods will fall as wallets grow thinner. The choppy conditions in equities, even though gains were made early in the week will continue to get plenty of attention and grow problematic again for financial institutions if their outlooks remain grim. This could create more downward pressure on equity indices.

Commodity prices also remain troubling. Energy prices remain high. Yes, they have come off apex ratios and sank to what could be considered almost polite territory for Crude Oil. Food prices however, via commodities like wheat and corn remain volatile. Wheat has sunk in prices, but a new worry is starting to be heard via traders on the Chicago Mercantile Exchange: the effect of the hot weather across the northern hemisphere and potential yield problems in North America on farms.

10 Key Data Points for the Coming Week Traders Should Watch:

1. U.S: CB Consumer Confidence – Tuesday

2. U.S: New Home Sales – Tuesday

3. Australia: CPI – Wednesday

4. U.S: FOMC Statement – Wednesday

5. U.S: Federal Funds Rate and Press Conference – Wednesday

6. Germany: Preliminary CPI – Thursday

7. U.S: Advanced GDP – Thursday

8. Japan: Tokyo Core CPI – Friday

9. Canada: GDP – Friday

10. U.S: Core PCE Price Index – Friday

EUR/USD Price Action has been Bullish in the Short Term, but can it continue?

The EUR/USD has seen some bullish price action recently and buyers of the currency pair may have been surprised by the ‘positive’ results as the EUR/USD climbed above parity strongly. However, the EUR/USD remains under shadows and the coming Fed’s interest rate hike, even though the ECB did raise rates too recently, will not calm the trading waters.

If Advance GDP numbers remain strong in the U.S, this could actually spur on additional Federal Reserve hawkish moves in the months ahead. While they do not want to admit it, the U.S Fed needs to cool down consumer spending to create additional pressures in order to tame inflation. Gross Domestic Product has a large part of its percentage based on the habits from U.S consumers.

This week’s trading action in the EUR/USD may stay rather tame leading up to the Fed announcement and even be bullish and speculatively higher. However, if U.S numbers via Advance GDP and consumer prices remain troubling on Thursday and Friday, fundamentally this could cause headwinds to blow and create bearish pressure on the EUR/USD while the USD grows stronger if financial house view the data as reason for more hawkish policy to come from the U.S Fed as the coming week finishes.

EUR/USD Weekly Chart

USD/JPY Tested New Highs but Declined as the Weekend Approached

The USD/JPY remains near long term highs, and this is likely not about to vanish this coming week. Yes, the USD/JPY did sink rather dramatically before going into the weekend. If anything this should serve as a warning sign for traders who do not like vast volatility to be very careful in the days ahead. This coming week of U.S policy and economic data is likely to cause a supreme amount of trading fluctuations.

With holidays coming up for many in the financial world, this week of trading may see extreme amounts of volume. The 136.000 level could be viewed as important support, but if it falters the question speculators may want to ask is what the risk reward scenario presents. Is it more likely the USD/JPY will see a large drop of value or will the currency pair continue to incrementally test its higher range? This while U.S economic data remains troubling, the U.S Fed remains hawkish and the Bank of Japan remains dovish – and this scenario may not change soon.

What is the possibility the U.S inflation fears will suddenly vanish this week may be the question that is best to be asked, the answer is that the inflation numbers will not be solved soon. And this may be the key to the USD/JPY moving ahead this coming week. Expect the USD/JPY to remain within its higher value range, it may not test new highs in the coming days, but if may see the 136.000 and 137.000 ratios again.

USD/JPY Weekly Chart

Commodity Prices need to be monitored because of Weather

Commodity prices have declined the past month and half as speculative zeal has certainly started to become tame. Prices in grains such as wheat and corn have declined dramatically and this may help the inflation crunch seen internationally among food products. However, dramatic news regarding weather conditions in the U.S and Europe could cause a flurry of activity in the coming days in the grain futures and for CFD traders of commodities.

There are legitimate worries about yields of crops coming under stress if high temperatures continue and do not decrease quickly.  Weather conditions are always a factor in grain commodity prices, but because of the nervous conditions which exist in the marketplace internationally due to the Ukrainian war and logistical problems globally, now is not a good time to suddenly create more worries about grain supplies.

The prices of the grains should be monitored and behavioral sentiment will have an effect of trading conditions. Traders should be cautious and know choppy conditions could ignite again in wheat and corn if weather conditions due not improve.

Wheat Weekly Chart

Bottom Line

The financial markets are certain to be volatile this week as trading houses and speculators react to the important news flow which is a certainty this last week of July:

• The NASDAQ Composite should be watched. A fall below the 11,700.00 support level could spell trouble and produce more nervous selling if sentiment takes a hit.
• The USD/JPY finished last week at lows and will be volatile with U.S Fed policy being announced, the 136.000 to 138.000 ratios need to be monitored. Risk management is essential. Choppy conditions are a certainty.
• The EUR/USD did gain last week and the Fed’s coming interest rate hike may have been digested, but it is unlikely a bullish trend in the EUR/USD can move substantially higher.
• Commodity prices within the grains, including Wheat, will see volatility as traders react to agricultural news because of the hot weather and tough growing conditions in the northern hemisphere.

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