EUR/USD Fundamental Analysis – week of May 21, 2018

The euro had a pretty disastrous week, by its own standards, and our forecast that the break of the pair below the 1.20 region only points to further weakness in due course of time turned out to be more or less true. Last week, we saw the EURUSD pair fall by around 200 pips which is quite large especially considering the fact that the traders had been used to a tight 200 pip range for several weeks before that.

EURUSD Heading Towards 1.15

This tight range had one thing for sure though. The fact that the range lasted for so long only indicated that the breakout would be much larger if and when it comes along and this is what we are seeing now. Last week, we saw the incoming data from the Eurozone continue to be weak which means that there is very little hope that there would be any tapering of the QE in the coming weeks and this anticipation led to a sell off in the euro which continued through the week.

We also saw that the dollar continued to gain in strength all across the board and this, coupled with the euro weakness was enough to push the pair from near the 1.20 region to below the 1.18 region during the course of the week and the fact that the pair closed the week below 1.18 points to further weakness in the short term.

Looking ahead to the coming week, there seems to be very little by way of respite for the euro in the coming days. The focus of the coming week would be on the FOMC meeting minutes where it is widely expected that the Fed would continue to remain hawkish and point to further rate hikes in the coming month. The market has already priced in 2 more rate hikes while the market also awaits the Fed to indicate further hikes by the end of the year. We also have the inflation report hearings from the Eurozone but none of these events are likely to be favourable for the euro and we can only suspect that the euro would continue to weaken towards the 1.15 region.