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The difference between success and failure in Forex trading is highly likely to depend 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. There are some valid long-term trends in the market right now, which might be exploited profitably.

Fundamental Analysis & Market Sentiment

I wrote in my previous piece that the best trade opportunities for the week were likely to be a long trade in silver against the US dollar (XAG/USD) following a daily close above $24.15, long of gold in US dollar terms, long of the EUR/USD currency pair, and short of the USD/JPY currency pair.

The silver trade did not set up, but bold in US dollar terms gained by 2.32%. The USD/JPY currency pair ended the week higher by 0.77%, and the EUR/USD currency pair ended the week lower by 0.56%. These trades gave an averaged win of 0.36%, so it was a good call overall.

The news is currently dominated by optimism over US economic data released last Friday, which showed a decline in average hourly earnings at the same time as lower unemployment and above-average new job creation, giving hope that the Fed may be able to bring down inflation without causing a recession – even though the US is technically already in a recession by the traditional data-driven definition.

Friday’s data resulted in risky assets advancing firmly that day.

Although there has been a backdrop of generally falling inflation over recent months, data last week showed that Eurozone core inflation rose to a record high of 5.2%, causing some concern and raising expectations that the ECB will make a strong rate hike at its next meeting.

Markets are eagerly awaiting the release of new US CPI (inflation) data this coming Wednesday. This has become the most important recurring event in the economic calendar. FOMC meeting minutes released last week showed that bringing down inflation remains the Fed’s primary concern.

Global stock markets ended the week higher. The Forex market saw most strength in the Australian dollar last week, with the Japanese yen the weakest major currency.

Rates of coronavirus infection worldwide again dropped last week for the third consecutive week, according to official data. However, there are credible reports suggesting millions of new infections sprung after China’s 'Zero-Covid' measures were recently scrapped.

The most significant growths in new confirmed coronavirus cases overall right now are happening in China, the Philippines, and Taiwan. There is a new Omicron sub-variant becoming dominant in the US which is causing some concern.

The Week Ahead: Jan. 9-13, 2023

The coming week in the markets is likely to see a higher level of volatility, as there are some major data releases scheduled, including highly important US CPI data. The scheduled major releases, in order of importance, are:

1. US CPI (inflation) data.
2. Australian CPI (inflation) data.
3. British GDP data.
4. US Preliminary UoM Consumer Sentiment data.

It is a public holiday in Japan on Monday, Jan. 9.

Technical Analysis - U.S. Dollar Index

The weekly price chart below shows the U.S. Dollar Index printed a bearish hammer candlestick which rejected the resistance level at 102.94, which has continued to hold. Even though the candlestick closed slightly up for the week, the chart is clearly bearish. We also see the dollar within a long-term bearish trend, with the price continuing below its levels of both three and six months ago.

The short–term and long-term directions in the US dollar look likely to be bearish – there are no bullish signs at all. Therefore, it would be wise to only take trades short of the US dollar over the coming week.

There will be a release of US CPI data on Wednesday. If it shows a surprisingly large value (well above 6.5% annualized), then that could cause a strong upwards move in the greenback against this trend, so you should be wary of that possibility.

XAU/USD (Gold)

Last week, gold printed a large bullish candlestick which made the highest weekly close seen since June this year. The price also reached a new long-term high, closed well above the high of last week, and closed near the high of its weekly range, which are all bullish signs.

The price may now face a key resistance level nearby at $1879.50, which could halt gold’s advance, at least temporarily. The technical picture is unquestionably bullish, and we are continuing to see better momentum here than in silver. Although most commodities are not performing strongly in today’s market, precious metals such as gold and silver have been notable exceptions.

The price of gold is likely to continue to rise this week. I believe ongoing, historically high levels of inflation and a newly rising stock market will increase the pressure for gold’s value to rise further.

EUR/USD

Last week saw the EUR/USD currency pair fall slightly, but the weekly candlestick printed is arguably a bullish hammer candlestick (hanging man) which suggests that after a deep retracement, the long-term bullish trend has resumed. The price chart below shows how the past several bullish weeks have made a strong, impulsive breakout from the former long-term bearish trend line which had been driving the price lower.

This pair is clearly showing a bullish long-term trend, and such trends are often statistically quite dependable in this currency pair. As the price is not far from its recent high, I am happy to remain long of this currency pair. If the price can get established above $1.0700 later this week, that would be a bullish sign.

It is important to remember that this currency pair is often prone to very deep retracements even when it trends, especially on the long side.

USD/JPY

Last week, the USD/JPY currency pair printed a bearish near-hammer candlestick with a healthy range, closing well inside the lower half of its price range. We continue to see a valid, long-term bearish trend.

Recent weeks have seen the Japanese yen rise strongly as the Bank of Japan began to pivot away from its extremely dovish monetary policy. That has faded away as a market mover, and it now seems that the current price movements are all about weakness in the US dollar.

This weakness seems likely to persist unless the US CPI data, which will be released this Wednesday, comes in higher than expected. It is expected that the annualized rate will fall from 7.1% to 6.5%.

As we still see a valid long-term bearish trend, I am happy to be short of this currency pair.

Bottom Line

I see the best opportunity in the financial markets this coming week as likely to be long of gold in US dollar terms, long of the EUR/USD currency pair, and short of the USD/JPY currency pair.

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