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, despite the continuing spread of the coronavirus pandemic which is still sweeping the world.

Big Picture September 6

In my previous piece last week, I saw the most attractive trade set-up as likely to be long of the S&P 500 Index and the AUD/USD and GBP/USD currency pairs. This was not a great call as all three assets fell over the week: the S&P 500 Index closed down by 2.36%, the GBP/USD currency pair ended down by 0.53%, and the AUD/USD currency pair ended down by 1.02%. This gave an average loss of 1.24%.

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 Australian Dollar.

Fundamental Analysis & Market Sentiment

The economic impact of the coronavirus pandemic seems to be transferring income streams from smaller to larger businesses and boosting the profitability of large tech companies.

The market’s focus now is centered 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 is endangered by the resurgent coronavirus. 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.

Another area of focus was last week’s non-farm payroll data which shows how many new jobs are created within the U.S. economy each month. The number more or less hit the expectation that well over 1 million new jobs would be created, leaving the U.S. with an unemployment rate a little higher than 10%, which is far better than the rate in most other OECD nations. Paradoxically, this relatively strong economic data was accompanied by a sharp correction in the U.S. stock market. 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 two weeks ago is the announcement by Abbot 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.

Friday saw the highest ever number 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 are improving 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 days.

Three countries are currently recording daily coronavirus death tolls over 1,000: India, the United States, and Brazil.

Latin America and the Caribbean are now responsible for approximately 43% of confirmed new daily deaths, with the U.S.A. at 16% and Europe at about 6%. The strongest growth in new confirmed cases is happening in Argentina, Austria, Bahrain, Belgium, Bosnia, Brazil, Bulgaria, Burma, Canada, Costa Rica, Croatia, Cuba, Czech Republic, Denmark, France, Georgia, Greece, Hungary, India, Indonesia, Iraq, Israel, Italy, Jordan, Kuwait, Luxembourg, Mexico, Moldova, Montenegro, Morocco, Nepal, Netherlands, North Macedonia, Norway, Paraguay, Portugal, Romania, Slovakia, Slovenia, Spain, Switzerland, Tunisia, Turkey, U.A.E., Ukraine, the United Kingdom, Uruguay, and Venezuela.

The coming week is likely to bring a more active Forex market as the summer ends and September gets underway. We will get central bank input concerning the Eurozone and Canada.

Technical Analysis

U.S. Dollar Index

The weekly price chart below shows last week printed a bullish candlestick which ended the week about halfway up the range of the previous week’s candlestick. 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, and the fact that there was nothing out of the ordinary about last week’s bullish retracement.

S&P 500 Index

Last week printed a large bearish candlestick, but there was a large lower wick and the support level at 3393 held. Although the sell-off was sharp and happened over only two days following several weeks of steady gains, it is probably not enough for bulls to panic over. It is unclear whether the market will bounce back next week, but the bull market remains in force despite a steeper decline seen in the Nasdaq 100 and even steeper declines seen in a few major technology stocks.

USD/CAD

The Canadian Dollar is in a long-term bullish trend and rose again somewhat last week against the U.S. Dollar which is in a long-term bearish trend. This is interesting as the U.S. Dollar made quite a firm rebound against most other currencies. The problem with trading this pair short is that although there is some bearish momentum, the price has reached a pivotal area of long-term support below 1.3000. Therefore, this pair should only be traded short following a daily New York close below 1.2971.

Bottom Line

I see the most attractive trade set-up for this week as likely to be short of the USD/CAD currency pair following a New York daily close below 1.2971.