Image Source: Unsplash

The difference between success and failure in Forex trading is highly likely to depend on 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 that the best trade opportunities for the week were likely to be:

• Long of the USD/JPY pair. The currency pair saw an increase of 0.59% over the week.
• Long of WTI crude oil futures. Futures saw an increase of 1.54% over the week.

The total profit was 2.13%, representing an average gain per asset of 1.06%.

Over the past week, risk sentiment has soured quite strongly, and the main reason for this is the Fed’s policy meeting last Wednesday which produced a “hawkish hold.” While the Fed left rates unchanged as expected, the Fed now expects it will raise rates again by 0.25% later in 2023, meaning the terminal rate of the current tightening cycle is not yet reached.

While the Fed still expects it will then go on to cut rates in 2024, it now expects it will make only 2 cuts of 0.25%. This hawkish surprise triggered a further advance in the US dollar and US Treasury yields (the 2-year yield reached a new 15-year high above 5%), while stock markets sold off quite strongly. Riskier currencies and commodities suffered much less, if at all.

The other major event last week was the Bank of England’s narrow vote to leave its interest rate unchanged, by 5 members to 5. The Bank had been expected to agree to hike rates, even though British inflation data had just shown a surprisingly low annualized rate of 6.7% when 7.0% was expected, so this was a dovish surprise from the Bank of England just after the hawkish surprise by the Fed. This triggered weakness in the British pound, which was the weakest major currency last week, and put the GBP/USD currency pair in focus.

The Swiss National Bank made a surprise rate hold last week, after being widely expected to raise its interest rate by 0.25% to 2.00%.

Markets will likely see a quieter agenda over the coming week with relatively few high-impact data releases due, so it is difficult to what might trigger a change in risk-off sentiment, at least until Wednesday’s release of US GDP data, which could produce a change in feeling concerning the Fed’s likely future course over the near-term.

Last week’s other key data releases were:

1. Canadian CPI (inflation), which was a little higher than expected.
2. Bank of Japan Monetary Policy Statement, which held no surprises.
3. US Unemployment Claims, which met expectations.
4. RBA Monetary Policy Meeting Minutes, which also met expectations.
5. New Zealand GDP, which was better than expected, with a quarterly increase of 0.9% with only 0.4% expected.
6. Flash Manufacturing & Services PMI for USA, Germany, UK, and France, which were mixed and a bit worse than expected.

The Week Ahead: Sept. 25-29, 2023

The coming week in the markets is likely to see a lower level of volatility than last week, as there are considerably fewer high-impact data releases scheduled. This week’s key data releases are, in order of importance:

1. US Core PCE Price Index
2. US Final GDP
3. US CB Consumer Confidence
4. Australian CPI (inflation)
5. US Unemployment Claims
6. Canadian GDP
7. US Revised UoM Consumer Sentiment
8. German IFO Business Climate Data
9. China Manufacturing PMI

Technical Analysis - US Dollar Index

The weekly price chart below shows the US Dollar Index advanced last week for the tenth consecutive week to close at a new six-month high price, continuing its long-term bullish trend. A few weeks ago, it made a bullish breakout beyond the upper trend line of a long-term descending wedge pattern, as I had forecasted.

The price ended the week near the top of its range and printed a bullish pin bar. These are bullish signs, but it should be noted that the price failed to get established above the key resistance level which I have identified at 105.36.

The dollar is in a long-term bullish trend, as evidenced by the price trading above its levels from both three months and six months ago. I see the US dollar as having bullish momentum, which means it is probably a good idea to only look for long trades in the US dollar this week. However, bulls should be aware of the resistance level at 105.36, and of the fact that the momentum of the trend is showing signs of slowing down.

(Click on image to enlarge)

GBP/USD

The GBP/USD currency pair printed a very bearish weekly candlestick, which closed right at its low, marking the lowest weekly close in six months.

This pair is in focus right now as the US dollar is strong and trending up, while the British pound has seen renewed selling since the Bank of England narrowly voted to pass on an expected rate hike last week, while British inflation data came in lower than expected. These led to a lowering of expectations concerning rate hikes, which weakened the currency.

The price chart below shows a cluster of resistance levels beginning at $1.2168. I think the price is likely to reach this level during the coming week. If it can break below all three support levels in that area, it will probably head for the big, round number at $1.2000 where the price would be likely to consolidate for some time.

I see this currency pair as a good one to trade over the current week while looking for short trades, but being mindful of price targets at $1.2168 and $1.2000. This pair often finds a convincing direction when it is breaking to new prices early in the London session.

(Click on image to enlarge)

USD/JPY

The USD/JPY currency pair printed a bullish candlestick which was close to being a pin bar, but it didn't quite make it. We saw a relatively small range over the week, but the price made the highest weekly close seen in almost an entire year. The price also closed quite near its high, which is another bullish sign. However, the low volatility does suggest that this bullish movement might be running out of momentum.

I still see this currency pair as a long-term buy due to the very loose monetary policy of the Bank of Japan, as well the long-term downwards trend in the yen. However, the Bank of Japan and the Japanese government have started to make comments recently which tend to trigger sudden rises in the yen, and there is a sense that the Japanese authorities will look to intervene if the yen continues to weaken much further. T

his and the low volatility might make things a bit risky for bulls, but there are good fundamental and technical reasons to look for long trades in this currency pair in the meantime. It is also true that the big, round number at the JPY150 level produced a strong bearish reversal the last time it was reached. It could do so again.

(Click on image to enlarge)

WTI Crude Oil

WTI crude oil futures lost some ground over the past week, after breaking out to new nine-month highs recently. The daily chart below shows a downwards move and then a weak recovery towards the end of last week.

The deterioration in risk sentiment, or at least its secondary effect of suggesting we will see a stronger slowdown in global economic growth, proved to be bad news for crude oil bulls,

However, there is a valid long-term trend in this space, and OPEC has recently taken restrictive measures. Trend trading commodities long when they make bullish breakouts to new long-term high prices has historically been a very profitable trading strategy.

I still see WTI crude oil as a buy, but only following a daily close above $92.10. That would put the price into blue sky territory, but the very large, round number at $100 might act as natural resistance.

(Click on image to enlarge)

Nasdaq 100 Index

The Nasdaq 100 Index fell strongly over the past week, closing just above the key support level which I identified at 14657. It will probably continues down this point as a zone of support, to approximately 14,500.

Stocks have taken quite a heavy knock recently, despite all the current fascination with AI tech which has lifted tech indices strongly since the start of 2023. Now, markets are being led to believe a more hawkish narrative by the Federal Reserve, and we are seeing major stock indices tumble.

The price seems to have arrived at a very pivotal area. We saw an attempt at rallying from this zone on Friday, but the Index gave up almost all its earlier gains by the end of the day. I do not want to be long of stocks, except in terms of a very long-term investment. Short selling can be very dangerous and is likely best left to experts, but we may see a stronger fall here if we get a daily close below 14,500.

(Click on image to enlarge)

No. 11 Sugar Futures

Last week saw sugar futures reach a new multi-year high price. Sugar has been in a long-term bullish trend since November 2022, and the trend has accelerated strongly during the past few weeks.

Trend trading commodities long when they make bullish breakouts to new long-term high prices has historically been a very profitable trading strategy. There is also a fundamental factor supporting the bullish trend: an ever-growing and high demand for sugar globally.

The problem for bulls is that if you take a look at the daily chart, although a new high was made last week, the price is clearly breaking to new highs. However, the bearish pullbacks which we have just seen look quite weak, and the price is not far from the recent high.

Therefore, I see sugar as generally a buy, but the best time and safest entry method will likely be after we see a daily close above $27.50, which is above the highest recent daily close at $27.44 and is also a major quarter-number.

(Click on image to enlarge)

Bottom Line

I see the best trading opportunities this week as:

1. Short of the GBP/USD currency pair targeting a profit level of $1.2168.
2. Long of the USD/JPY currency pair.
3. Long of sugar futures following a new daily close above $27.50.
4. Long of WTI crude oil futures following a new daily close above $92.10.

More By This Author: