EUR/USD Daily Fundamental Forecast – January 19, 2017

Yesterday, we saw the dollar finally gain back some of its strength on the back of some good economic data and also due to some fundamental changes that occurred in the market during the course of the day. We had been expecting this return to strength of the US dollar and we always believed that it was only a matter of time before it returned. But now that it has returned, it remains to be seen on how the dollar fares going forward and whether this move will continue and become a strong trend or whether this will only be a brief correction of the dollar weakness that we have been seeing over the past couple of weeks. With Trump set to take charge tomorrow, we are in for some interesting times ahead.

Yesterday, the dollar was quiet during most part of the Asian and the London session though the things were simmering with the EURUSD unable to make a break for it after piercing through 1.0700. The pair could not make further progress and was waiting for economic data to make some headway. That came in the form of CPI data from the US which was as per expectations and this helped the dollar to gain some strength which quickly dissipated in the market volatility. The real changer came after the speech by the US Fed Chief Yellen who made it clear that the economic data is as per Fed targets and if the data continues like this for the next few months, then we could expect another hike from the Fed pretty soon. This turned the attention of the markets firmly towards the rate hikes from the Fed and was viewed as dollar positive. This pushed the EURUSD pair towards 1.0620 and it trades just above that as we write this. We believe that the dollar will continue to hold on to its strength which is likely to keep the pair under pressure.

Looking ahead to today, we have the ECB rate statement and the following press conference. We do not expect any changes in the rates or in anything, for that matter but we could expect the ECB to spell out the targets and what has been achieved. We also have the Philly Fed Index and Unemployment Claims data from the US which should ensure good volatility and we expect the dollar strength to continue for the day.