Forex Forecast: Pairs In Focus - Sunday, Feb. 7

10 and one 10 us dollar bill

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 a few valid strong long-term trends in favor of stocks and riskier assets.

Big Picture February 7

In my previous piece last week, I saw the most attractive trade opportunities as looking for selective longs in the S&P 500 Index and the GBP/USD and USD/JPY currency pairs.

This was a great call, as there were opportunities for profitable buys according to my forecast in all three assets, if held until Friday’s close.

Last week’s Forex market saw the strongest rise in the relative value of the British pound and the strongest fall in the relative value of the euro. The long-term trend in the U.S. dollar is no longer clear-cut. We are instead seeing long-term weakness in the Japanese yen and long-term strength in the British pound and in the commodity currencies.

Fundamental Analysis & Market Sentiment

The headline takeaway is that we saw an increase in risk-on sentiment towards the end of last week and a flow into of capital into the U.S. Unusually, we saw U.S. stock market indices such as the S&P 500 index not only close the week at an all-time high, but the U.S. dollar strengthened as well simultaneously. This means that capital is flowing into the U.S. as data continues to show that the U.S. economy is improving. Last Friday’s data showed that average hourly earnings and new jobs were in positive territory, but not by as much as the consensus forecast had expected. However, the U.S. unemployment rate fell sharply, to only 6.3% instead of the 6.7% unemployment rate which had been expected. Nevertheless, this was due to declining labor force participation, which is bad news. This is helping to generate increased expectations of inflation in the U.S., which is turn bolsters the case that the Fed may end up tightening monetary policy in the medium term, and this helps lead to increasing strength in the USD.

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