Get the Forex Forecast using fundamentals, sentiment, and technical positions analyses for major pairs for the week of July 11, 2022 here.

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The difference between success and failure in Forex trading is very likely to depend mostly upon which assets you choose to trade each week and in which direction, and not on the exact methods you might use to determine trade entries and exits.

So, when starting the 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 are affected by macro fundamentals, technical factors, and market sentiment.

Fundamental Analysis & Market Sentiment

I wrote in my previous piece last week that the best trades for the week were likely to be:

• Short of GBP/USD following a daily close below $1.1975. This set up on Tuesday and produced a losing trade of 0.65%.
• Short of BTC/USD following a daily close below $18,500. This did not set up.
• Short of ETH/USD following a daily close below $993. This did not set up.

The news dominated by the delayed resignation of British Prime Minister Boris Johnson and the assassination of former Japanese Prime Minister Shinzo Abe. News of Johnson’s resignation gave a small boost to the British pound, which had been rapidly losing value over recent days. The murder of Abe had little effect upon the Japanese yen.

After more than four months, the war in Ukraine has partly faded away from its former place as a lead news item and appears to be having little effect on markets, except a possible weighing on global recession fears. Although there was much talk about a rise in the prices of agricultural commodities such as wheat and corn, recent weeks have seen strong falls in the prices of commodities.

The outlook regarding risk appetite is unclear. The US stock market is still in a bear market, but it rose quite firmly last week - although the US yield curve remains inverted, and US stocks rose over the week. The US Dollar Index rose very strongly over the week, closing at a new 20-year high. The past week has seen overall directional movement remain quite strong.

There were a few important economic data releases last week, which is why market volatility picked up. The results came in as follows:

1. US FOMC Meeting Minutes – the Fed expressed its determination to continue raising rates as much as necessary to bring down inflation. Markets reacted little, as there were no surprises in the statement.
2. US Non-Farm Payrolls data – this came in much higher than expected, with 372 thousand new jobs created compared to the expectation of about 260 thousand.
3. Swiss CPI – this came in higher than expected, with a month-on-month increase in prices running at 0.5% compared to the 0.3% which had been expected, vindicating the SNB’s recent action of hiking its interest rates.
4. Australia Cash Rate & Rate Statement – as expected, the RBA hiked rates by 0.5% to 1.35%.
5. US JOLTS Job Openings – this came in slightly stronger than expected.
6. US Employment data – the US unemployment rate remains historically low at 3.6%.
7. Canadian Employment data – Canada saw a net loss of jobs, but its unemployment rate fell from 5.1% to 4.9%.

The Forex market saw another strong advance by the US dollar last week. The Australian dollar and the Japanese yen were also strong currencies. The euro was especially weak, and the EUR/USD currency pair reached a new 19-year low not far from parity.

Rates of coronavirus infection globally once again rose last week against the long-term downwards trend, suggesting that we are in a new major wave, possibly driven by the new omicron BA5 subvariant.

The significant growths in new confirmed coronavirus cases overall right now are happening in Bangladesh, Bolivia, Belgium, Colombia, Croatia, Dominican Republic, Lebanon, Montenegro, Pakistan, Switzerland, Albania, Austria, Belarus, Brunei, Cyprus, France, Germany, Greece, Guatemala, Iraq, Italy, Japan, Mexico, New Zealand, Singapore, Tunisia, and the UAE.

The Week Ahead: July 11-15, 2022

The coming week in the markets is likely to be even more volatile than last week, as there are several high-impact data releases scheduled this week, including highly important US CPI data. They are, in order of likely importance:

1. US CPI - this has become the major market event, with markets strongly hoping that US inflation has peaked.
2. Chinese GDP data.
3. US Retail Sales data.
4. RBNZ Official Cash Rate & Rate Statement.
5. Bank of England testimony before UK parliament.
6. Bank of Canada’s Overnight Rate, Rate Statement, and Monetary Policy Report.
7. US PPI data.
8. Australian Employment data.
9. US Preliminary UoM Consumer Sentiment data.

It is a public holiday in France on Thursday, July 14.

Technical Analysis - U.S. Dollar Index

The weekly price chart below shows the U.S. Dollar Index printed a large bullish candlestick which closed at a new 20-year high, in line with the long-term trend, which is bullish. This is significant as breaks to new high closes suggest the price will rise further over the coming days. However, note there is a large upper wick, and that the price did not advance on Friday, so we may have seen a climax suggesting the price will not rise further soon.

It looks wise to trade the US dollar long over the coming week once it starts rising again on shorter time frames, at least until the release of US CPI data on Wednesday which could cause volatility in the dollar.

US Dollar Index Weekly Chart

EUR/USD

Recent weeks and months have seen a lot of strength generally in the US dollar, but the euro has also been standing out lately as an especially weak currency due to concerns over the ECB running out of options to tackle resurgent inflation, making the EUR/USD currency pair potentially exciting to trade short.

The price fell sharply last week, reaching a level close to parity, and making its lowest weekly close in 19 years. However, it is important to note that the daily chart saw the week conclude with a strong and bullish pin bar, suggesting we may be about to see a rise in the price. If this bullish pin bar is taken out by a strong bearish reversal, that would be a very bearish sign.

I suggest waiting for a daily close below $1.0100 before considering entering a short trade here.

EUR/USD Daily Chart

USD/JPY

Last week saw a strong advance by the US dollar, but the Japanese yen was also strong, meaning the price of the USD/JPY currency pair advanced little. However, having seen reversals in the dollar’s major counterparties, the EUR/USD and the GBP/USD, it may be that further dollar strength will be expressed against other currencies such as the Japanese yen.

Breakouts are typically more powerful after periods of consolidation, and we have seen the price trade quite tightly below recent long-term highs. I am prepared to take a long trade in this currency pair if we get a daily close above JPY136.66 (ideally above the round number at JPY137.00).

USD/JPY Daily Chart

Bottom Line

I see the best opportunities in the financial markets this week as likely to be:

• Short of EUR/USD following a daily close below $1.0100.
• Long of USD/JPY following a daily close above JPY136.66 (ideally JPY137.00).

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