EUR/USD Daily Fundamental Forecast – January 16, 2017

EURUSD continues to consolidate near its range highs as it seems to be setting itself up for a move higher. The return of the dollar strength seems to be taking much longer than expected and in some parts of the markets, the hopes seem to be fading away. The new President-elect Trump did nothing to bolster the confidence in the dollar and for the first time since the end of the US election, the traders are beginning to doubt whether Trump would be as good for business as he was expected to be. This doubt has increased the risk for the dollar and this is reflected in the weak dollar and a strong EURUSD.

The euro traded in a tight 100 pips range for the better part of 2 days and it looks that it may soon come out of this range. While a large part of the market expected the break down towards its lows when the liquidity returned to the market after the New Year, what we have had is continuing dollar weakness which has pushed the pair beyond 1.0600 and towards 1.0700. The bulls seem to be waiting for the right time to break through 1.0700 and if and when that happens, we can expect the pair to move towards 1.0850 atleast. The dollar strength is nowhere in the horizon and this is a bit surprising as we believe that the market is too focussed on Trump and his political and administrative inexperience and has failed to price in the upcoming rate hikes so far.

Looking ahead to today, as is typical of any Monday, the economic calendar is very bare and we also have a bank holiday in the US and so we expect some more consolidation near the range highs as the market waits for direction from somewhere so that it can make its next move.