EUR/USD Monthly Forecast – March 2018

The euro had a bearish month during February which has basically reversed most of the gains that it had managed to make since the beginning of the year. The EURUSD had been consolidating since the end of January and we had mentioned in our daily forecasts that the consolidation and the ranging at the top indicated that there would be a fall in the following days and this began slowly and steadily and the pair ended the month in a weak manner near the 1.22 region and this points to further weakness in the months ahead.

EURUSD Moves Lower

The Eurozone economy continues to remain stable and this has helped the euro to an extend but even this has not been able to fully negate the strength of the dollar which has been growing over the last few weeks. The ECB is also a bit wary about the gaining euro and hence have been trying to underplay the strength of the economy though it is clear that the incoming data would warrant the ECB to slowly start tapering the QE in the coming months and the ECB may also look to start hiking rates from next year. It is a combination of these factors that have been adding to the strength of the euro.

But, on the other hand, we have been seeing the dollar gain in strength due to the anticipation of further rate hikes. The data during February has been mixed with the NFP coming in stronger but the inflation slipping but the overall data has been doing pretty well this has been enough signal for the dollar bulls to start buying the same. Also, we have many Fed members also beginning to feel hawkish about the economy and this has also helped to fuel the strength of the dollar. The market expects the Fed to hike the rates 3 times during the course of the year but with the incoming data continuing to be hawkish, it is being increasingly felt that the Fed would be able to accommodate even 4 rate hikes during the year and this has also led to a lot of dollar buying.

Towards the end of the month, we saw the new Fed Chief Powell take center stage and the market saw him stick to the script with him being hawkish about the economy and this more or less confirms the rate hike during the month of March. We believe that the dollar is likely to remain hawkish in the medium term and this should see the pair coming under even more pressure during this period.

Dollar Likely to Continue Bullish

In the coming month of March, we are likely to see the incoming data from the US continue to show the strength in the US economy and we also expect the Fed to hike rates during the month and also lay out a path on when the next rate hikes are likely to be. The market is slowly beginning to price in 4 rate hikes for the year and with no signal yet of anything to the contrary , we can expect that to continue in the coming month of March, unless the Trump administration rakes up something that would bring in geopolitical tensions into the picture.

If that happens, then we are likely to see the dollar coming under pressure in the short term but the fact that the rate hikes are still on, should help the dollar recover each and everytime. That is why we advise our traders to be alert and use every bounce in the EURUSD pair as an opportunity to go short on this as the medium and long term trend is likely to favor the dollar. Technically, the pair is likely to find some support in the 1.2240 region and unless we have a weekly closure below this region, we cannot be sure of further weakness.