EUR/USD Fundamental Analysis – week of March 12, 2018

The EURUSD pair ended the week on the backfoot and it threatens to break through the important support region around 1.2250 and move lower in the coming weeks. The dollar gained across the board though there was no warning that such a thing would happen, when trading began for the week. The dollar was on the backfoot at that point of time as the euro made strong progress through the 1.24 region.

EURUSD Under Pressure

The bullishness at the beginning of the week was due to the tariff plan that was proposed by the US administration on the imports of steel and aluminium. Trump added fuel to the fire by saying that they would not back down on the tariffs and also said that he might extend it to include the other metals as well. This led to fear and uncertainty in the markets as there was a feeling that this could lead to a global trade war in due course of time.

This led to dollar selling and this in turn helped the euro to move higher in steady manner and this continued till the middle of the week. But when the tariff plan was finally signed, we saw that it was a much watered down version of the original plan and we also saw that there were a lot of exemptions for the neihbours of USA like Canada and Mexico and it also had provisions for giving these exemptions to many other countries as well. This removed the pressure on the dollar which helped it to recover and this recovery was further fuelled by the strong NFP data which has confirmed the rate hike in March.

Looking ahead to the coming week, we have the inflation data and retail sales data from the US while we have a speech from Draghi and these are likely to bring in some volatility. The important point to note in the coming week would be to see whether the pair would finally break through the 1.2250 support region for good. It did a false break a couple of weeks back but it recovered above it by the end of the same week. With the impending rate hike in March, the dollar bulls are likely to be more decisive in the coming week and we could finally see the break that the dollar bulls need.