EUR/USD Monthly Forecast – July 2018

The EURUSD pair which was on a steep decline across April 2018 saw range bound movement in month of June 2018 influenced by global trade war and Central bank decisions. As Trade wars hit new highs, the EURUSD pair hit new 360 day low’s testing 1.15 handle before seeing some recovery action. The first week of June saw the pair move from 1.161 handle to 1.184 handle as fears over Italian crisis ebbed down due to Italy’s League and 5-Star having finally reached an agreement to form a coalition government. Another major factor that helped push Euro higher was news of US allies taking steps to retaliate against the U.S. measures which rekindled trade war fears that had subdued around last week of April. However the common currency faced some pressure against US Greenback over political climate in Spain as Prime Minister Mariano Rajoy was ousted through vote of no-confidence in parliament and the position replaced by Pedro Sanchez of Spanish Socialist Workers Party post which Nationalists regained control of Catalonia’s government and called for independence talks. The first week saw continued news that helped push Euro higher despite trade war and internal conflict woes in Europe.

EURUSD Falls But Shows Support

Euro moved above 1.170 handle over influence gained from Italy PM Conte commenting that his country has no plans to leave the Euro and mentioned his plans on new government’s tax cuts and higher welfare spending plan lifted Italian bond yields. The pair saw further uptrend movement testing 1.18 handle over news on QE program closing in Bloomberg. This news was confirmed the next day by comments from key ECB figures who signaled that the Policy meet to be held on second week of June will see members discussing on possibilities to end the 2.5 trillion Euro bond purchase program. The second week of June saw EURUSD holding above 1.17 price handle for majority of the week with focus on ECB & US Fed Policy meet and G7 summit proceedings. The second week opened on a positive sentiment for Euro as G7 summit held over the weekend in Canada ended in a disaster with US President Trump storming out of the meeting after lashing out against its allies which weighed down US Greenback and brought back trade war woes into focus.

Euro saw slight bearish pressure mid-week over dovish macro data and hawkish US Fed policy meet updates as the interest rate was raised in line with expectations and Fed update confirming two more rate hikes within the year. But Euro recovered momentum immediately with focus shifting from US Fed meet to ECB policy meet updates. Post ECB meet update saw the pair plummet down from monthly high of 1.185 handle. While updates from ECB confirmed QE tapering talks with decision to phase out stimulus provided by three year bond buying program by end of 2018 by reducing the bond purchase volume from 30 billion Euros to 15 billion Euros after September 2018, the update also mentioned that ECB does not have any plans for rate hikes till summer of 2019. As market players had predicted rate hike by ECB before summer of 2019, Euro investors chose to sell the currency. This along with US Greenback gaining strength from positive proceedings in US-N.Korean meeting in Singapore earlier in Second week of June caused the pair to move back to near monthly lows around 1.156 handle.  The second week closed on cautious note around 1.154 handle as ECB President Mario Draghi tried to salvage Euro’s decline by commenting that future rate hike update depends on macro data release hinting that a positive macro data could facilitate a rate hike earlier than mentioned and  US Greenback faced pressure as news hit market on President Trump’s decision to meet with advisors over decision to impose tariff on import of Chinese goods worth billions of dollars.

The third and fourth week of June saw the pair trapped between monthly high and low making range bound movement over short term news influenced market with no major change in trend. The third week saw investors focus on Manufacturing and Markit Composite PMI in both Euro and European calendars with US Greenback hitting 11-month high as US Treasury yield saw upward spike albeit losing momentum to Euro at end of week over momentum gained from better than expected European PMI data. The last week of June saw Euro continuing to climb higher as US Greenback continued to lose strength from trade war concerns over Sino-US tariff issues.

Forecast

Euro also gained some bullish support on last trading session of the month over updates from EU summit in which European leaders reached a deal on the thorny issue of migration after all night talks. The pair closed for the month in Euro’s favor at 1.168 handle with majority of month gaining momentum from news on geo-political events and trade war related proceedings rather than a macro data supported momentum. Moving forward immediate focus remains on US non-farm payroll data with no major releases in Euro zone and EURO is likely to decline further as trading session moves into month of July. Recent strength in Euro’s rally lacks fundamental support and USD remains strong on broader market as prospect of multiple rate hikes this year gives it an edge against common currency which as of now doesn’t have any rate hikes before summer of 2019 and current market provides lot of opportunity for traders with risk appetite supporting growth of US Greenback in long term.