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Non-farm payrolls is the main event on the economic calendar this week so I offer up my take on what will happen to EUR/USD in this Week Ahead Forex forecast. Thanks! Rich

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Non-farm payrolls preview: forex forecast - WEEK AHEAD (Mar 29- Apr 2, 2021)



Hi everyone, in this week ahead in financial markets, my attention will be on whether the major forex pairs will continue their recent decline. So, this week I’ll talk about why EUR/USD is at a 2021 low and while doing so I’ll talk about non-farm payrolls as the highlight of this week’s economic calendar and impact of quarter-end rebalancing.

First up we’ve got the EUR/USD chart. Do you remember 5 weeks ago I asked if rising bonds yields would send EUR/USD under 1.20? Well, the answer was a resounding yes. Looking at the weekly chart we can see the pullback has gone beyond the previous high from August, so that means the next major level to test is the previous low near 1.16. On the daily chart, EUR/USD has closed below its 200-day moving average- which is one indication the trend has turned bearish. 

Now the highlight of the weekly economic calendar is non-farm payrolls on Friday but there are some other things to watch first. CPI data from Germany and Europe could have a short-term affect on EUR/USD but the ECB just agreed to do lots more bond buying over the next 3 months so inflation isn’t going to affect policy near term. As far as NFP goes, we’re expecting a rise to 500k jobs created in March, up from 379k in February. Keep in mind when trading the dollar – that good data is inflationary – that pushes up bond yields and helps the dollar but it is also good for global growth so the dollar will be less in demand as a haven. 

I think it’s worth talking about the Europe-side of things first. The vaccine rollout across the Eurozone has been a real disappointment and is causing problems. Several European countries made plans for tighter covid restrictions over the Spring- knocking belief in economic recovery. Europe and thus EUR/USD stand to do well when economies are fully reopened. The dollar will do well and EUR/USD will likely do worse if it looks like Europe won’t have enough people vaccinated to allow travel during summer holidays.

From the US perspective, the just-passed US stimulus bill is a major boon- and means expectations for growth in the US are much higher relative to Europe. All last week Federal Reserve officials talked about how interest rates in the US won’t go up soon- but markets still think they will go up sooner than in Europe- so the dollar is rising. I think something I’ll be talking about more in the coming weeks is whether rising taxes in the US will negatively affect the dollar. 

But shorter-term – something to look out for this week is month and quarter-end rebalancing. Basically, it’s the end of the quarter and that means hedge funds and mutual funds will need to sell some of what’s done well and buy some of what’s cheaper. A lot of them have a fixed bond to stocks ratio they are supposed to keep- which means because bonds have fallen a lot in the last quarter, there may be a need to ‘rebalance’ their portfolios by buying more bonds and selling stocks. If a big sell-off in equity markets were to occur, that is probably bullish for the dollar, bearish EUR/USD.

Right thanks everyone, good luck trading this week and make sure to subscribe so you don’t miss the next episode of the week ahead.