EUR/USD Daily Fundamental Forecast – August 7, 2017

The EURUSD bulls suffered a setback on Friday when their worst fears began to come true. We had mentioned in many of our forecasts that one of the main drivers for the weakness in the dollar was the economic data from the US which continues to come in pretty weak. We had also mentioned that basing this rally on the weak data would mean that we would reach a stage when the data os no longer weak and that could lead to a quick reversal in the rally.

EURUSD Reverses

That day came on Friday when the data from the US was pretty strong. The NFP came in at a strong 209K against the expected value of 180K while the wages data also came in pretty strongly. All of this was very much positive for the dollar which lead to a reversal in the EURUSD uptrend as it fell from above 1.1889 to below 1.1730, a fall of around 150 pips. It has since recovered quite a bit and trades just below 1.18 as of this writing but  it is clear that the momentum in the pair has been broken.

It remains to be seen whether this fall is a correction in the uptrend or whether it is a full scale reversal of trend. We had mentioned in our forecast on Friday that only a clean fall below the 1.1720 region would mean a reversal in the uptrend and till that happens, we have to take this as only a correction. On Friday, we saw this pair bounced exactly from this region and so the situation is still pretty fluid on which way the pair will go.

Looking ahead to the rest of the day, apart from a couple of Fed members speaking, we do not have much economic events scheduled for the day. But as we mentioned, the momentum in the EURUSD pair is clearly broken and we have to see how the dollar recovery is going to proceed from here. The seeds for the recovery have been sown and if the data continues to come in strongly, then it would raise hopes for a quicker rate hike from the Fed which should continue to feed the dollar strength.