Forex Forecast: Pairs In Focus, Jan. 17

10 and one 10 us dollar bill

Big Picture 

In my previous piece last week, I saw the most attractive trade opportunities as long of the S&P 500 Index (SPX,SPY). I also saw short-term trading opportunities long in Bitcoin (BTC/USD) until the current bubble finally burst.

This was not a great call as the S&P 500 Index fell by 0.92% over the week. The Bitcoin (BITCOMP) bubble burst, which I was at least correct to warn about, and using a tight stop there last week should have ensure a break-even result on any long trades as the price rose on Monday.

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. There is still a valid, long-term, strong trend against the U.S. dollar meaning it is an attractive time to be trading Forex, as the greenback is the prime driver of the Forex market. However, last week saw the U.S. dollar rise firmly for the second consecutive week, suggesting that trend trades against the dollar need to wait a while.

Fundamental Analysis & Market Sentiment

The headline takeaway is that we are seeing a flow into the U.S. dollar and into safe havens, although most major stock market indices are not far from their all-time highs.

Last week saw President-elect Biden announce a new $2 trillion stimulus plan which will include a $2,000 cash payment to every American adult. Although the Federal Reserve Chair Jerome Powell has described the plan as “appropriate”, markets are a little nervous about it, and it has probably had the effect of pushing up yields on U.S. treasuries which, paradoxically, has sent flow into the U.S. dollar, pushing it up over the past few days. The longer-term effect of Biden’s economic policy is likely to see continuing weakness in the U.S. dollar in line with its existing long-term trend.

Last week again saw a similar level of volatility in the Forex market to the previous week. There is likely to be a higher level of price movement over the coming week due to President-elect Biden’s scheduled inauguration, and central bank input from the European Central Bank, the Bank of Japan and the Bank of Canada.

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