EUR/USD Fundamental Analysis – week of May 14, 2018

The EURUSD pair finished the week on a strong note after dropping down to the 1.18 region where it has since found a lot of support. The pair has been able to rebound from that region towards the middle of the week and closed the week comfortably above the 1.19 region.

EURUSD Rebounds from 1.18

We cannot visualise this as a total recovery of sorts but have to view this as only a correction of the downtrend in the market that has been going on for the past 2 weeks. The downtrend had been brought about by the strength of the dollar which has been picking up of late. The dollar strength can be attributed to the growing anticipation of rate hikes from the US and also the fall in the pair has been due to the expectation that the QE is likely to continue for longer than what was originally expected by the traders and the investors.

Towards the middle of last week, the dollar strength had reached alarming proportions and the dollar bears were looking for some relief from somewhere. That came in in the form of the inflation data from the US which missed the expectations of the market. It came in weaker and this was the relief that the markets were expecting and this has since helped the pair to rebound from the 1.18 region. But as long as the pair is below the 1.20 region, we can only look at this move as a correction and now a change of trend as yet.

Looking ahead to the coming week, we have the retail sales data from the US which is the 3rd most important piece of data from the US after the NFP and the CPI data. The market would be hoping that there would be some strong piece of data atleast in the retail sales as the incoming data from the US has been quite weak over the last few weeks and we dont think that the dollar strength would be able to continue for much longer if this continues. The coming week would also see a speech from Draghi which would be noted for any further hints about the QE and its tapering.