The difference between success and failure in Forex trading is very likely to depend 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 questionable rebound or recovery, despite the continuing growth in the coronavirus pandemic which is still sweeping the world.

Big Picture 2nd August 2020

In my previous piece last week, I saw the most attractive trade set-ups as likely to be long of Gold and Silver in U.S. Dollar terms as each half of one unit, and long of EUR/USD as another unit. This was a very profitable call, as gold rose by 3.89% over the week, Silver by 7.23%, and the Euro by 1.14%. This produced a very strong overall result for the week of a 6.70% portfolio gain.

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 Swiss Franc.

Fundamental Analysis & Market Sentiment

The world is not coming to an end, but we are living in an extraordinary time of global health crisis, the magnitude of which has not been seen in over one hundred years. The vast majority of people are going to survive and be healthy, yet the impact of the crisis still dominates the global economy, as the virus is appearing to be resurgent even in countries that had initial success in suppressing its spread.

Last Friday saw daily new confirmed coronavirus cases hit just a fraction below a new all-time high, at 289,329 confirmed cases. This is a sign that globally, the wave of disease is still advancing to a peak.

We have seen the epicenter of the global coronavirus pandemic move into Latin America, although the U.S.A. has overtaken Brazil to again become the country with the highest average number of daily deaths from the virus. The rolling averages of deaths have decreased significantly in Europe. However, the U.S.A. has seen a sharp increase in new cases over recent weeks in many states, with the worst-affected states in the Midwest. Cases are also rising in Asia, especially India.

Latin America and the Caribbean are now responsible for approximately 44% of confirmed new daily deaths, with the U.S.A. rising to 19% and Europe at about 7%. The strongest growth in new confirmed cases is happening in Albania, Algeria, Argentina, Armenia, Australia, Bahamas, Belgium, Bosnia, Colombia, Czech Republic, Dominican Republic, Ethiopia, El Salvador, Greece, India, Indonesia, Iran, Iraq, Israel, Japan, Kenya, Kosovo, Lebanon, Morocco, Nepal, Panama, Paraguay, Peru, Romania, Serbia, Spain, U.A.E., Uzbekistan, and Venezuela.

The U.S. stock market rose a little last week to make its highest weekly close since February. Although the economic impact of the resurgent coronavirus is a worry and recent data showed an annualized drop in GDP over the second quarter of 2020 at 32.9%, recent corporate earnings releases have provided enough comfort to investors to hold up the stock market.

The U.S. Dollar again fell quite strongly last week, while precious metals again rose quite strongly, although not as much as they did over the previous week. There is an increasing feeling that the Eurozone economy may be better placed to recover from the economic impact of the coronavirus than the U.S. economy, which has helped boost the Euro against the U.S. Dollar.

In the U.S.A., there is considerable concern about the persistence of unemployment from earlier closures and restrictions and the economic impact of the reversals of easing which are now being imposed in several states.

The coming week will bring some very important releases concerning major currencies: as well as the U.S. non-farm payrolls data, we will get central bank releases concerning the British Pound and the Australian Dollar.

Technical Analysis

U.S. Dollar Index

The weekly price chart below shows last week printed a bearish candlestick which made the lowest weekly close seen in over two years, which is a bearish sign. There is finally a long-term bearish trend, as the price is lower than it was both 3 and 6 months ago. The only problem for bears is that although the price has broken below the 12087 area which has provided support since early 2019, we see a significant lower wick which was formed by a fairly strong reversal on the last day of last week, meaning a retracement may now happen in favor of the Dollar as the market opens next week. Overall, next week’s price movement in the U.S. Dollar looks more likely to be downwards than upwards (UDN).

Gold

Last week printed a large bullish candlestick which closed at a new all-time high weekly closing price, which is unquestionably a bullish sign. The close is also near the high of the range, which is another bullish sign. The only thing bulls have to worry about here is the proximity to the big round number of $2,000 which might interrupt the “blue sky” the price is currently rising through. I again see that it is time to trade Gold in the long direction, as the signs point to higher prices still over the coming week (GLD).

Silver

Last week printed a fairly large bullish candlestick, which closed at a new 8-year high weekly closing price. However, the price did close far off the high of its weekly range after peaking on Tuesday. These are mostly bullish signs and other precious metals such as Gold are also advancing against the U.S. Dollar. However, I want to see a daily (New York) close above $24.61 before going long. There is a fairly good chance that the price of Silver will rise over the coming week, but I am more optimistic about Gold (SLV).

EUR/USD

Last week printed a fairly large bullish candlestick, which closed at a new 2-year high weekly closing price. However, the price did close far off the high of its weekly range after peaking early on Friday. These are mostly bullish signs and other currencies have also been advancing against the U.S. Dollar. However, I want to see a daily (New York) close above 1.1847 before going long. (FXE)

Bottom Line

I again see the most attractive trade set-ups for this week as likely to be long of Gold and Silver in U.S. Dollar terms as each half of one unit, but Silver should only be entered after a New York close above $24.61, and long of EUR/USD as another unit but only following a daily close above 1.1847.