EUR/USD Daily Fundamental Forecast – December 21, 2016

It is the holiday season and that is beginning to show up in the markets. usually the second of every month is a bit slow as compared to the early half of the month as the economic news dry up and there is no specific push from any economic news or fundamentals and so we get some standard moves during the second half of a month based on general market themes and currency flows. But in December, it gets worse as the second half of the month coincides with the holiday season in most parts of the financial world. Traders go on holidays, bankers go on holidays and the traders desks become slowly empty. This causes the liquidity to dry up and we either have no volatility in the markets or we have a lot of volatility as the low liquidity is used by market manipulators to push specific currency pairs in specific directions.

This year it seems to be a period of ranging and consolidation and we saw a glimpse of that over the past 24 hours. The EURUSD pair was restricted to a range of around 60 pips even though the dollar strength was the dominating theme and we expect this range to get tighter and tighter as we approach the Christmas weekend. Traders must make sure that they are not lulled into a false sense of security over these moves. It is better to not trade under such conditions but if you plan to, make sure that you trade with tight stop losses.

Looking ahead to today, we do not have much news from the Eurozone or the US region and so expect some more ranging with a bearish bias. We believe that any bounce in this pair towards 1.0460 would be a good place to short with a tight stop loss. The dollar strength is likely to be the underlying theme in the markets in the short and medium term.

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