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EUR/USD Monthly Forecast – March 2019

By:
Colin First
Updated: Mar 3, 2019, 09:47 UTC

Rangebound action likely as headlines on geopolitical events are likely to influence price action and neither resolution nor a fallout in proceedings seem evident anytime in near future.

EUR/USD weekly chart, March 04, 2019

The price for EURUSD pair for the month of February was dovish as predicted in my previous monthly forecast. While the pair closed on a dovish note, the decline wasn’t as steep as expected owing to conflicting headlines that hit the market across the month. However, as expected the price action in the global forex market was highly dominated by the proceedings of geopolitical events. Sino-U.S. trade talks and Brexit proceedings had greater say in the overall price action despite there being other significant factors that helped set directional bias. Meanwhile, a look at the weekly chart shows that price action still remains trapped in wider rangebound price limits. The pair has over the course of the last five months been trapped in the price range of 1.12125 to 1.15679 within which the pair has been trading in a zig-zag pattern with multiple dead cat bounce scenarios which could have become a breakout had the attempt to breach been successful. The pair is seeing strong support and resistance around 1.12339 to the downside and 1.15140 to the upside within the wider price band mentioned earlier hindering a clear breakout in price action. As geopolitical events dictate the price momentum, a true breakout is likely to be achieved only when one of the two major events dominating the global market comes to end be it positive or negative.

Cautious Trading Activity Influenced Dovish Price Action in Early February

A positive resolution of geopolitical events will lead to a boost in risk appetite and favor a price action that leads to an upside price movement of Euro and other major global currencies. On the other hand, a negative resolution will lead to the escalation of a trade war between two parties involved in talks and result in further economic slowdown causing US Greenback and other safe-haven assets such as precious metals and safe haven forex currency pairs to gain momentum in the global financial market. The first two weeks of February saw a steady decline in price action as caution ahead of key UK parliament session and a deadline approaching for Sino-U.S. trade talks influencing risk-averse trading activity. However, the UK parliament session saw key decisions expected to be addressed in the meeting postponed twice during the month and headlines hinting at unexpectedly favorable proceedings in trade talks between China and the U.S. and possible delay in the deadline for imposing the tariffs on Chinese goods. These factors led to improved risk appetite in the market, boosting EURO bulls influencing a recovery rally in the second half of the month. Aside from Sino-U.S. trade talks and Brexit headlines other factors that affected price action stem from ECB’s comments and actions.

News had hit the market that ECB was planning to initiate a TLTRO (Targeted Long Term Refinancing Operation) aimed at improving the European economy. This was viewed as a highly dovish signal as ECB just ended a long term Quantitative easing measure just last December. While ECB has kept the interest rates unchanged during the last monetary policy and various members acknowledged the fact that the European economy has suffered a slowdown and even downgraded the growth forecast for 2019, several members made clear that labor market and industrial activity still retains some level of strength in current market conditions. Therefore despite dovish signals owing to proceedings of Brexit and geopolitical issues such as the US trade war with China and the threat of imposing tariffs on the European auto market, ECB has decided to wait and observe market proceedings before making any major decisions relating to TLTRO implementation. The comments hinted that while ECB may prepare for TLTRO it is unlikely to be initiated anytime before the end of March or early April relieving immediate dovish pressure on EURO and supporting bulls on their positive price rally to some extent.

Headlines on Geopolitical Events To Dominate Price Momentum Across March

In the month ahead the early half of will focus on Sino-U.S. trade talk as US President Donald Trump gave contradicting comments in the last week of February. While he first tweeted trade talks were proceeding in a favorable direction, following the fall out between denuclearisation talks with North Korean leader Kim Jong Un, he is likely to go forward with plans to impose tariffs if US demands are not met by China. UK parliament is also yet to vote on no-deal Brexit and second Brexit referendum or delaying article 50 deadlines. The scenario from a fundamental perspective paints a dovish picture for price momentum in the month of March 2019. Unless deadlines are extended or positive resolution for is found in the days ahead, the market is likely to see rangebound price action with dovish bias. However, in case there is a fall out in trade talks between China & U.S.A. or the UK goes forward with no-deal Brexit, the pair is likely to see a sharp decline in price action with the price falling towards multi-year lows near the lower half of 1.11 handle last seen around May 2017. Investors will also be on the watch out for US tariff on the European auto market. Despite macro data outcome having high potential to influence directional bias as FY2018-19 comes to an end this month news driven momentum based on proceedings of geopolitical events will continue to dictate overall price momentum. When looking from a technical perspective, the pair faces strong supply near above mentioned price levels. But immediate directional bias is skewed to the downside. As the trading session opens for the first week of March 2019, the EURO is likely to continue declining unless the headlines changes the directional bias. Both RSI & Stochastic indicators are currently near mid-levels with signal lines pointing towards the oversold region in daily and weekly charts.

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About the Author

Colin specializes in developing trading strategies and analyze financial instruments both technically and fundamentally. Colin holds a Bachelor of Engineering From Milwaukee University.

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