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EUR/USD Monthly Forecast – September 2018

By:
Colin First
Updated: Sep 3, 2018, 07:59 UTC

The pair's long-term outlook remains bearish as Dollar's outlook remains positive on Fed rate hike promises with the pair closing for August month in a neutral stance.

eurusd

The EURUSD pair was one of the most traded and most volatile of August 2018. The pair saw momentum from both macro data and major market breaking news across the globe. However, a look at daily and weekly chart shows that the pair was range bound in the long term as First half of month saw USD gain value while second half saw EURO erase losses from the early half of month and ending very near to where it started for the month.

The first week saw the pair trapped within July’s momentum despite market sentiment remaining in favor of USD as FOMC statement released that week failed to have enough impact on the market. Ongoing Sino-U.S trade war woes also continued to influence the pair across the month as the first week saw Chinese government promising to retaliate with equal tariff if US Govt followed through on its threat of additional tariff’s announced in July. The second week started off in USD’s favor as weak Eurozone GDP and better than expected US Jobs data helped Greenback gain positive influence.

Euro Hits 13 Month Low on Turkish Crisis Exposure

Meanwhile, news of Italian populist government’s national budget plans caused widening of the spread between 10 year Italian and German bonds greatly impacting the shared currency in a negative manner.  Bearish German macro data also weighed down the pair in the early week but disappointing US PPI data and profit booking activities caused a pullback in US dollar’s momentum, however, Euro could not make any gains out of same as No-Brexit deal scenario was starting to weigh down European markets.

At the same time, US President Trump’s comments on ongoing trade wars and the possible tariff on Europe resulted in risk-off sentiment in market boosting USD which pushed the pair below 1.15 handle on last day and tested 1.14 price handle ahead of US CPI data.  US CPI data was well in line with expectations helping EURUSD pair remains below 1.14 handle as the trading session started for the third week.

Turkish Lira was on downtrend across the first half of August and its impact on the Turkish economy and major European markets and banks such as France and Spain caused Euro to plummet to 13 months low on the Third week with pair hitting lowest at 1.13009 handles. However, Turkish government and central banks response to the crisis helped cap downside movement at 1.1300 handles. The pair then began to rebound as news hit the market on the possible talk between Chinese and US representatives over trade dispute resolution which inspired USD to sell off and brought back risk appetite to market.

Further adding to USD’s weakness were inconclusive trade talks between Chinese and US Governments with both governments imposing strong tariffs on each other and disappointing macro data in US markets which helped pair gain support above 1.14 handle as momentum ran out of steam for currencies on both sides of Atlantic on last trading session of the week.

Comments made by US President Trump over his dis-satisfaction on fed rate hikes weighed down the market once gain which caused Euro to gain further ground against USD. However, Dallas Fed President Robert Kaplan helped minimize the damage during his speech when he supported prospect for 3 to 4 more rate hikes but investors were still cautious as this has become a repetitive scenario and wanted Fed chair Powell’s views before making further bets. EURUSD moved back above 1.15 handle as investors awaited Powell’s speech in Jackson Hole symposium and Powell’s comment made investors fears true with his dovish speech where he mentioned future rate hikes would be data dependent thus giving Euro bulls strong momentum across the fourth week of August.

While investors were focusing on EURO bull’s momentum the last week started with a dent in momentum on both sides of the pair as US President Trump announced his decision to buy Italian Debt bonds which are to be released in 2019. Italian government’s budget “Marshall plan” to revamp the country’s infrastructure after Genoa bridge collapse by announcing debt bonds worth $462 billion puts the country at odds with Euro as this move could set off another vicious round of Eurozone debt crisis and this could weaken European currency in the broad market in the long term while also keeping US Greenback’s growth contained which President Trump views as a win-win situation for his agendas. The pair went as high as 1.17 before finding resistance on news of Trump’s aid to Italy leaving both sides of the pair in a tug of war to grasp momentum and gain upper hand as the trading session came to close for the month.

USD Likely To Regain Momentum As EURO’s Rebound Was Result Of USD’s Weakness Rather Then Fundamentally Strong Euro

European data was overall disappointing, as business sentiment in the Union fell for an eighth consecutive month in August, The EUR surged but not on self-strength, while the USD later recovered, also lacking self-attractive, which left the pair little changed weekly basis, a handful of pips above the 1.1600 figure. September will start slow motion, with a holiday in the US due to Labor Day on Monday, but plenty of macroeconomic data the following days to give clues on macroeconomic health. Final Markit PMI for economies, European Q2 GDP, and the US Non-farm Payroll report are among the most relevant.

All in one, the dollar should have maintained the lead, if it weren’t by increasing doubts about future Fed’s monetary policies arose by US President Trump and his criticism of Powell’s stance. It could be that the previous weeks’ dollar decline has more to do with a due correction, and behavior this week suggests that such correction could be complete and therefore that dollar’s bulls are ready to make a come back in the month to come.

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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