EUR/USD Weekly Forecast (31th January 2022 – 04th February 2022)

Fundamental view:

The Euro traded low against the greenback and the pair reached to a weakest level of 1.1120 on Friday, which was last seen in June 2020. The US dollar was trading high since the start of the week but rallied after the US Central bank monetary policy announcement. Federal bank has meet the expectation by keeping the rates and tapering unchanged and repeated that pandemic related financial support will end in March. The Fed Chairman Jerome Powell provided many hawkish signals in his press conference. He told that he will not rule out a rate hike in every meeting this year and also gave hint of March Liftoff. Meanwhile Russia – Ukraine geopolitical tensions also underpinned the bullish move of the US dollar.

On the other hand, European Central Bank is about to have a monetary policy meeting on Thursday next week. It is widely anticipated that ECB will maintain its current policy unchanged, maintaining the cautious approach to future changes.

In this week, US Markit Manufacturing PMI on 24th January and Eurozone  Jobseekers Total on 26th January favored bullish trend whereas Eurozone Markit Services PMI on 24th January, FOMC Press Conference on 26th January and Core Durable Goods Orders monthly report on 27th January favored bearish trend for the pair.

The major economic events deciding the movement of the pair in the next week are Eurozone group GDP quarterly report at Jan 31, US ISM Manufacturing PMI at Feb 01, US ADP Nonfarm Employment Change, EIA Crude Oil Stocks Change at Feb 02, ECB Interest Rate Decision, Initial Jobless Claims, US ISM Non-Manufacturing PMI at Feb 03 and US Nonfarm Payrolls at Feb 04.

EUR/USD Weekly outlook:

Technical View:

Last week’s high was 0.79% lower than the previous week. Maintaining high at 1.1344 and low at 1.1121 showed a movement of 223 pips.

In the upcoming week we expect EUR/USD to show a bearish trend. The currency pair is trading below the 100 Simple Moving Average and the MACD trades to the downside. Should 1.1065 proves to be unreliable support then the pair may fall further to 1.0982 and 1.0842 respectively whereas a solid breakout above 1.1288 will open a clear path upward to 1.1428 and then will further raise up to 1.1511. In H4 chart descending channel pattern breakout downside favors prospects for a bearish trend. Also to be noted bearish engulfing formation exerts the expectation of downtrend for the pair.

Preference
Sell: 1.1148 target at 1.0951 and stop loss at 1.1292

 

Alternate Scenario
Buy: 1.1292 target at 1.1510 and stop loss at 1.1148

Analysts expect Bitcoin bounce

  • McGlone, senior commodity strategist expects a bounce in the bitcoin.
  • Binance, the world’s largest cryptocurrency exchange wants to expand in Russia and neighboring states.
  • According to JPMorgan, The boom-and-bust nature of bitcoin will hinder institutional adoption.

 

Bitcoin had a quite disappointing year till Jan 25. 2022, However it has 12% partial recovery to $38,100 on Jan. 26. Amidst Hawkish move from Fed weighing on Bitcoin, few other catalysts favors the Bitcoin.

In a tweet on Jan. 25, Mike McGlone who is senior commodity strategist at Bloomberg Intelligence, is eyeing Bitcoin’s position relative to its 20-week moving average, noting that historically, current levels have marked a turning point.

“The fact that Bitcoin is an up-and-coming asset, with less than $1 trillion market cap vs. about $100 trillion of global equities, that got a bit extended may give the crypto an advantage,” he commented. His comments favors the Bitcoin.

Elsewhere, Binance, the world’s largest cryptocurrency exchange, wants to expand in Russia and neighbouring states where it sees prospects for new regulations that will boost its business, an executive said.

Russian politicians have pressed for a change of tack by the central bank, which has proposed restricting cryptocurrency trading and mining because of concerns it may cause financial instability. They say it should instead regulate a business which could draw in more tax revenues.

Moreover, President Vladimir Putin has called for the central bank to find a consensus on how to deal with the cryptocurrency business, which central banks and regulators around the globe have been grappling with.

“Our goal is to obtain a licence and conduct legal business where the regulation allows,” Binance Eastern European Director Gleb Kostarev told Reuters, adding that his company hoped for a progressive regulatory approach from Russia that could influence the approach taken by its neighbours.

On the other hand, Institutions have been slowly warming up to bitcoin because of its uncorrelated returns to equities and other asset classes. But that notion has been challenged in recent sell-offs that occurred in tandem with equity market declines.

“The biggest challenge for bitcoin going forward is its volatility and the boom and bust cycles that hinder further institutional adoption,” JPMorgan said.

BTC/USD 4 Hour Chart:

Support: 35424.5 (S1), 34648.9 (S2), 33761.9 (S3).

Resistance: 37087.1 (R1), 37974.1 (R2), 38749.7 (R3).

Amidst all the catalysts, we expect a cautious optimism for bitcoin, we expect a bullish trend for BTC/USD.

Dollar is up as Fed flags rate hike

  • Dollar reaches five week high with Fed meeting market expectation.
  • Powell’s comment after the monetary policy also favored the US dollar.
  • Geopolitical tension and Rising cases of Omicron weighs on yen.

 

The dollar traded high and reached near a five-week high on Thursday after the Federal Reserve chair Jerome Powell flagged interest rate hikes amid inflation fears.

In the Policy meeting on Wednesday, the Fed indicated it is likely to raise U.S. interest rates in March, as per expectation, and he has also reaffirmed plans of ending its bond purchases that month before launching a significant reduction in its asset holdings.

He told reporters there was “quite a bit of room to raise interest rates without threatening the labour market.” He also warned that inflation remains above the Fed’s long-run goal and supply chain issues may be more persistent than previously thought.

On the other hand, Rising cases of Omicron in Japan weighs on the yen. “Japan’s daily count of new COVID-19 cases hit yet another record of over 70,000 on Wednesday as the more transmissible Omicron variant continues its rapid spread in Tokyo and elsewhere,” said Kyodo News.

Elsewhere, the geopolitical tension between Russia – Ukraine also underpins the bullish move of the quote – USD/JPY.

This week, US President Joe Biden said he would consider personal sanctions on Vladimir Putin if Russia invades Ukraine. He had warned there would be “enormous consequences” for the world if Russia made a move on the nation, which sits on its south-western border.

Russia has also accused the US and others of “escalating tensions” after it confirmed plans to fly 8,500 troops into Europe, and denies planning to enter Ukraine.

 USD/JPY 4 Hour Chart:

Support: 114.02 (S1), 113.44 (S2), 113.11 (S3).

Resistance: 114.94 (R1), 115.27 (R2), 115.86 (R3).

Fed by meeting the hawkish expectation of the market, helped the US dollar to trade high. We expect a bullish trend for USD/JPY.

Gold is steady ahead of Fed decision

  • Fears of Fed rate hike underpins the precious metal’s bullish move.
  • Geopolitical tensions of Russia – Ukraine also extends support to the Bullion.
  • Downbeat economic forecasts by the International Monetary Fund also favors the bullish move of XAU/USD.

 

Gold is trading upside against the greenback during Wednesday ahead of Fed verdict. This move can be linked to market anxiety ahead of a U.S. central bank decision on the pace of policy tightening, Meanwhile geopolitical concerns over Ukraine kept the yellow metal supported near the previous session’s 10-week high.

The Federal Reserve’s two-day meeting will end later in the day, and Market expects in a quarter-point tightening for the March meeting, plus three more for 2022. A senior International Monetary Fund official said on Tuesday “Expected rate hikes by the Fed may delay emerging Asia’s economic recovery and keep pressure on policymakers to guard against the risk of capital outflows.”

Market ignored softer US CB Consumer Confidence with a reading of 113.8 Vs forecast of 112.7,  which in turn favored gold buyers.

Meanwhile, U.S. President Joe Biden has said that he would consider personal sanctions on President Vladimir Putin if Russia invades Ukraine, as Western leaders stepped up military preparations and made plans to shield Europe from a potential energy supply shock. This in turn increases geopolitical concerns further.

Elsewhere, A top International Monetary Fund official said on Tuesday that An escalated conflict between Russia and Ukraine would likely further increase energy costs and commodities prices for many countries, keeping headline inflation rates elevated for longer.

First Deputy Managing Director Gita Gopinath told Reuters the situation now was far different than in 2014 when Russia annexed the Crimea region of Ukraine, and energy prices fell quite sharply amid low demand and ample shale gas supplies.

Furthermore, Official Gita Gopinath conveyed downbeat economic forecasts the previous day as Omicron spreads. “We project global growth this year at 4.4%, 0.5 percentage point lower than previously forecast, mainly because of downgrades for the United States and China,” said IMF’s Gopinath per Reuters.

Gold buyers will keep a watch on the Fed verdict with the hope of rate hike, Meanwhile  It cannot be ignored that recent doubts over the monetary policy due to Omicron might make the Fed Powell to sound cautiously optimistic which might be favorable to the Gold.

XAU/USD 4 Hour Chart:

Support: 1837.0 (S1), 1826.4 (S2), 1818.0 (S3).

Resistance: 1856.0 (R1), 1864.4 (R2), 1878.0 (R3).

Amidst all the catalysts favoring the yellow metal ahead of Fed’s verdict, we expect a bullish trend for XAU/USD.