Weekly Trading Support & Resistance with #Forex Forecast,Fundamental Analysis & Market Sentiment (30 MAY- 3 JUNE 2022)
Trading Support and Resistance
Get our trading strategies with our monthly & weekly forecast of currency pairs worth watching using support & resistance for the week of May 30, 2022.
This week I will begin with my monthly and weekly forecasts of the currency pairs worth watching. The first part of my forecast is based upon my research of the past 20 years of Forex prices, which show that the following methodologies have all produced profitable results:
- Trading the two currencies that are trending the most strongly over the past 6 months.
- Trading against very strong weekly counter-trend movements by currency pairs made during the previous week.
- Carry Trade: Buying currencies with high interest rates and selling currencies with low interest rates.
Let us look at the relevant data of currency price changes and interest rates to date, which we compiled using a trade-weighted index of the major global currencies:
Monthly Forecast May 2022
For the month of May, I forecasted that the US Dollar Index (USDX) would rise in value. So far, it has fallen by 0.79% this month to date.
Weekly Forecast 29th May 2022
Last week, I forecasted that the USD/CHF currency pair would rise in value. Unfortunately, it declined last week by 1.79%.
I make no forecast this week, as there were no unusually strong counter-trend price movements in the Forex market last week.
The Forex market saw its level of directional volatility fall again last week, with 33% of all the important currency pairs or crosses moving by more than 1% in value. Directional volatility is likely to decrease or remain the same over this coming week.
Last week was dominated by relative strength in the New Zealand Dollar, and relative weakness in the US Dollar.
Key Support/Resistance Levels for Popular Pairs
I teach that trades should be entered and exited at or very close to key support and resistance levels. There are certain key support and resistance levels that can be watched on the more popular currency pairs this week.
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 the S&P 500 Index following a daily (New York) close below 3,900. This did not happen, so there was no trade.
- Short of BTC/USD following a daily (New York) close below $28,606. This did not happen until Friday’s close, so there was no trade.
The news remains dominated by the Russian invasion of Ukraine, which is now into its fourth month, but has been met by an effective, NATO-armed Ukrainian defense, funded by the US alone with more than $40 billion to date. Russian forces are currently conducting a strong offensive in eastern Ukraine and seem to be having some successes, although Ukrainian forces are also counter attacking. The war initially caused quite strong movements in some markets, especially in certain agricultural commodities such as Wheat and Corn, but now seems to be having little effect beyond keeping the price of Wheat relatively high.
Markets had been exhibiting risk-off sentiment in recent weeks, which was expressed mostly in falling stock markets and bearish action in cryptocurrencies. However, the past week has seen global stock markets recover, with especially strong upward movement in the US market represented by the S&P 500 Index.
One reason for the stronger optimism on US stocks was the strong US consumer spending data released last week. There are plenty of economic concerns remaining in the background however, such as historically high rates of inflation, and the pace of rate hikes which will certainly be implemented over the coming months by major central banks.
Last week’s important economic data releases came in as follows, with no major surprises:
- US FOMC Meeting Minutes showed the next two months are likely to bring rate hikes of 0.5%, which is in line with general expectations.
- US Preliminary GDP annualized from Q1 2022 showed a decline of 1.5% compared to the 1.3% which had been expected. The data had little impact on the market.
- US Core PCE Price Index data showed an increase of 0.3% which was expected. This could be seen as positive for US CPI (inflation).
- The Reserve Bank of New Zealand hiked rates by 0.5% to 2.00% which is the highest rate of any major currency.
- German Flash Manufacturing & Services PMI data produced no real surprise.
Cryptocurrencies continue to look very weak, with minor coins generally in serious trouble as they decline in value by the day, but it is notable that Bitcoin buyers are still stepping in when Bitcoin threatens to break down below the $28,607 area. It should be said the price action is weak, and there remains a serious and immediate danger of strong falls in major cryptocurrencies. Short trades in cryptocurrencies will continue to attract speculators in this environment, while margin calls will force retail liquidations.
The Forex market is still dominated by a sell-off in the US Dollar which continues. The main factor driving the Forex market now is US Dollar weakness. Commodity currencies were the best performers over the past week, and commodity indices are rising towards new highs, with energy commodities performing especially well.
There is increasing hope that the coronavirus pandemic may be almost over, with rates of coronavirus infection globally falling again in line with a long-term downwards trend. The only significant growths in new confirmed coronavirus cases overall right now are happening in the Bahamas, Belize, Chile, the USA, Costa Rica, Panama, and Taiwan.
The Week Ahead: 30th May – 3rd June 2022
The coming week in the markets is likely to be equally or less volatile than last week. There are a few releases of high importance scheduled. They are, in order of likely importance:
- US Non-Farm Payrolls / Average Hourly Earnings & Unemployment Rate – this will be analyzed for clues as to the strength of the US economy and could impact decisions on future US rate hikes.
- Bank of Canada Rate Statement & Overnight Rate – the BoC is expected to hike rates by 0.50%.
- US ISM Manufacturing PMI
- Australian GDP data – expected to show a small increase.
- US JOLTS Job Openings
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