EUR/USD Fundamental Analysis – week of January 29, 2018

The EURUSD had a very bullish week but closed the week on a slight weaker note which gives some hope for the bears in the coming week. The fact that the euro managed to rise so much during a week that is on the second half of the month, when the economic data dries up, is an indication of not only the strength of the euro but also of the weakness in the dollar. Towards the end of the week, we have had a good battle between the bulls and the bears which points to an interesting week ahead.

Euro Showing Signs of Weakness

The euro has been moving higher for many weeks now but it was only last week that we began to see signs of weakness and fatigue among the euro bulls. The dollar continued to be on the backfoot during the first half of the week and this enabled the pair to push higher through the 1.24 region and then through the 1.25 region during this period. The ECB press conference, addressed by Draghi, did not add anything new to the market and it was more a repetition of the same news. Draghi did not choose to address the strength of the euro directly and this lack of dovishness led the euro even higher.

But as we entered the second half of the week, we began to see some fight from the dollar. The strength in the dollar was helped by the comments from Trump who said that he expected the dollar to be strong due to the strength of the incoming data. This led to a reversal in the pair which broke down from the 1.25 region and ended the weak just above the 1.24 region and we are seeing first signs of weakness in the pair. Whether this would translate into a reversal is something that we need to wait and see.

It is likely to be an important week ahead for the dollar as we have a lot of economic data to be released from the US. This includes the ADP and the NFP data, with the NFP report being one of the most important monthly data that the market awaits. The dollar bulls would be looking forward to some strong data to add some teeth to their fightback. The coming week would also mark the end of the month and so we are likely to see some month-end trade flows and trade positioning and this is also likely to affect the prices. If the US data comes out strong, we could see a reversal of the dollar weakness as we look forward to the new Fed Chief Powell taking over and the Fed hiking rates in the coming months.