EUR/USD Monthly Forecast – January 2018

It was expected to be a slow month in December as it was the last month of the year and the traders were looking forward to a couple of weeks of rest during the end of the month so that they could go on a holiday when the markets were at the quietest. There was also not much to look forward to by way of news or fundamental events though all the central banks would get a turn every month to be the center of focus for a few days when they make their rate announcement followed by the press conference. But the rate decision from the Fed was already known and even the speech from Yellen was not looked forward to in a great way even though it was the last speech from her before she would be replaced by the new incoming chief Powell.

EURUSD Pushes Through 1.20

As expected, the Fed hiked rates during the first half of the month but they were not as hawkish about the future rate hikes. In fact, a couple of Fed members were against the current rate hike as well and this was seen as a dovish signal from the Fed and this acted against the dollar which immediately came under pressure. Also, with Yellen going out and Powell coming in and with the market not in a position to fully grasp what policies that Powell would be following next year, it was a period of uncertainty for the dollar and though it placed the dollar under pressure, the fall in the dollar was not too much.

The ECB also made it clear that the QE would continue till atleast September 2018 and this also set the euro on the backfoot which led to some sort of a stalemate in the EURUSD pair for the first half of the month. For the second half, not many were looking forward to any kind of great action as traders began to go on holiday and this would generally mean less liquidity and hence less volatility as well. But what we got was further dollar weakness and this time, the weakness in the dollar was more profound than the dollar weakness in the early part of the month.

Traders Should Wait Till Second Half

In the absence of too much of liquidity, the bulls in this pair used this opportunity to push the pair higher and from the 1.18 region, we saw the pair make slow and steady progress during the last couple of weeks through the 1.19 region and finally through the 1.20 region and it ended the month and the year near the highs of its range and this helped the bulls to look forward to the month of January.

We are not yet convinced about the move higher as it happened on low liquidity and in general, anything that happens on low volume has a greater likelihood to get reversed in due course of time. This is what is expected during the first half of January and now it is upto the bulls to prove us wrong. Hence the first half of the coming month is expected to be spent as a battle between the bears and the bulls for the control of the direction in which the pair is likely to move. It is only during the second week of January that the real direction of this pair, for the short term, would become known and by this time, we are also likely to get a bunch of news from the major countries including the employment data from the US.

The arrival of such data would help the traders and the investors to determine the strength of the respective economies for the short term and make corresponding projections for the coming months and this would be helpful to determine the short term direction in this pair. We would advise the traders to wait till the second half of the month and see if the move higher holds and if it does, then we are likely to see further upside in this pair in the short term. With the pair now trading comfortably above the 1.20 region, the price region around 1.2070 region is expected to see a lot of selling and if this is overcome during the first half of the month, then we are likely to see the pair to move towards 1.22 and 1.23 during the second half.