Forex Forecast: Pairs In Focus - Sunday, June 20

10 and 20 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 great time to be trading markets right now, as there is strong short-term momentum in several areas triggered by a major central bank announcement – the U.S. Federal Reserve’s Economic Projection, which saw sharp upwards revisions in anticipated inflation, interest rates, and GDP over the near to medium term. This has caused the U.S. dollar and Japanese yen to strengthen considerably on strongly higher volatility, while the “asset bubble” commodity currencies (CAD, AUD, NZD), as well as European currencies, were hardest hit. Although these movements are not truly in the context of a supportive long-term trend, they are dramatic enough to look likely to follow through for a few days at least.

Big Picture June 20

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 Canadian dollar. Volatility in the Forex market rose sharply after the FOMC release on Wednesday.

I wrote in my previous piece last week that the best trades were likely to being long of the S&P 500 Index following a daily (New York) close above 4250, and of being long WTI Crude Oil. Unfortunately, the S&P 500 Index ended the week down by 2.08% after closing above 4250, while WTO Crude Oil is higher by 0.88% over the week, giving an averaged loss of 0.60%.

Fundamental Analysis & Market Sentiment

The headline takeaway from last week was the market’s surprise of the extent at the speed at which inflation is gaining pace in the U.S. coupled with rate hikes now looking likely to begin in 2023. This initially boosted the U.S. dollar but then prompted a flow into the Japanese yen as well, while stocks and commodities (and the commodity currencies of course) took a dive. European currencies also fell sharply, especially the NOK and SEK. So, the key takeaway is a rise in risk aversion more than a boost for the greenback, although it looks likely that the U.S. dollar will enjoy some momentum for a while longer after gaining so sharply.

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