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 not on the exact trading methods you might use to determine trade entries and exits. The current market environment has changed from one of crisis to a questionably rebound as global stock market indices recovered to reach new all-time highs before correcting, despite the continuing spread of the coronavirus pandemic which is still sweeping the world.

Big Picture September 13

In my previous piece last week, I saw the most attractive trade set-up likely to be short of the USD/CAD currency pair following a daily (New York) close below 1.2971. We never got a daily close below 1.2971 so no trade was triggered.

Last week’s Forex market saw the strongest rise in the relative value of the Euro and the strongest fall in the relative value of the British Pound, due to the increasing likelihood that the U.K. will exit from its current trade arrangement with the E.U. without a new deal.

Fundamental Analysis & Market Sentiment

The focus now of stock market analysts in the U.S. is centered mostly on the political dispute in the U.S.A. over the terms of additional fiscal stimulus which the U.S. economy is seen to require as the U.S. economic recovery in endangered by coronavirus. There are some signs that the initial recovery is faltering, although recent new jobs numbers were good. This is echoed in other countries around the world, with markets watching to see how effectively local economies bounce back from the initial part of the crisis.

The U.S. stock market has continued to correct from its recent all-time high. Most analysts see the correction as nothing out of the ordinary as stock markets had been making a parabolic rise for some time. However, some analysts see the strong U.S. jobs data as pointing to a potential end to the “coronavirus trade” i.e. long major tech stocks, driven by the growing success of the reopening of the U.S. economy, meaning that technology which will prosper in a lockdown economy is maybe being come to seen as less of an attractive investment.

The third major issue now is progress being made in a number of channels towards a safe and effective coronavirus vaccine. A related issue here which saw a major development three weeks ago is the announcement by Abbott Laboratories that they will be rolling out 50 million units from October of a very cheap and accurate home coronavirus test every month. If well used, this tool could enable severe containment or even localized eradication of the virus.

Last week saw monthly policy releases from the central banks of the Eurozone and Canada. The ECB did little except state that it was somewhat concerned about the strength of the Euro and would be keeping an eye on it. The Bank of Canada said it would extend its extraordinary stimulus program for as long as necessary. There were no surprises here. Greater attention has been paid towards the escalating breakdown in the prospect of a trade agreement between the E.U. and the U.K. as the period of the interim agreement runs down. If the U.K. were to finalize its exit from the E.U. without a trade deal, this would be very negative for the British Pound, and we have already seen the Pound fall very strongly last week on this prospect.

Last Friday saw the highest number (310,692) of daily new confirmed coronavirus cases worldwide, suggesting that the current wave of infection is far from over.

We have seen the epicenter of the global coronavirus pandemic move into Latin America. The number of new cases in the U.S.A. has declined notably in recent weeks. Globally, coronavirus deaths are still lower than they were during their peak in early April, suggesting the virus may have become less lethal, or medical systems have effectively improved their treatment capacities. However, a worrying development has come in the form of a strong rise in new daily cases within the European Union over recent weeks, not to mention the enormous number of new confirmed cases that are being seen currently every day in India.

The only country currently recording a daily coronavirus death toll over 1,000 is India.

Latin America and the Caribbean are now responsible for approximately 41% of confirmed new daily deaths, with the U.S.A. at 14% and Europe at about 6%. The strongest growth in new confirmed cases is happening in Albania, Andorra, Argentina, Austria, Bahamas, Bahrain, Belgium, Bolivia, Bosnia, Brazil, Bulgaria, Burma, Canada, Costa Rica, Cuba, Czech Republic, Denmark, Finland, France, Georgia, Germany, Greece, Guatemala, Hungary, India, Indonesia, Iran, Iraq, Israel, Jordan, Lebanon, Lithuania, Malaysia, Malta, Moldova, Montenegro, Morocco, Nepal, Netherlands, Norway, Philippines, Portugal, Romania, Slovakia, Slovenia, Spain, Switzerland, Tunisia, Turkey, U.A.E., Ukraine, the United Kingdom, Uruguay, Uzbekistan, and Venezuela.

The coming week is likely to bring a more active Forex market as we will be getting central bank input concerning the U.S.A., Japan, and the U.K.

Technical Analysis

U.S. Dollar Index

The weekly price chart below shows the U.S. Dollar index printed another bullish candlestick which ended the week with the highest closing price seen in six weeks. The price also broke above a key resistance level, which has now been invalidated. Despite these bullish signs, there is a long-term bearish trend, as the price is lower than it was both 3 and 6 months ago. Overall, next week’s price movement in the U.S. Dollar looks slightly likely to be downwards due to the prevalent trend, although markets are currently in “risk-off sentiment” mode which suggests that the Dollar will not weaken.

GBP/USD

The GBP/USD currency pair fell strongly last week. In fact, this was its strongest fall since the initial impact of the coronavirus pandemic last March. This fall comes after a double top was made recently in the 1.3500 area. Risk-off markets have boosted a formerly weak U.S. Dollar, while the gloomy outlook on U.K. – E.U. trade talks has hit the Pound hard. Although we have no long-term trend here, a further fall this week is quite possible. However, it should be noted that the price showed signs of bottoming out on Thursday and Friday at the support just above the big psychological quarter-number of 1.2750.

EUR/GBP

The EUR/GBP currency cross rose strongly last week, making its highest weekly close in over a year. The weekly candlestick also closed near the top of its range, which is another bullish sign. However, strong movements in currency crosses usually do not become persistent long-term trends. There is a special situation here as the movement is driven by pessimism over U.K. / E.U. trade negotiations. As long as this continues, the bullish movement here is likely to continue.

Bottom Line

As the U.S. Dollar is moving firmly counter-trend, I see the best likely opportunity in the Forex market this week in looking for short-term trades against the British Pound using either the Euro or the U.S. Dollar as a counterpart. However, I am not confident that such movement will persist for the entire week.