EUR/USD Daily Fundamental Forecast – January 24, 2016

The EURUSD pair continues to trade strongly as the dollar weakness continues across the board. When the new year began, everyone expected the dollar strength to return. After all, the dollar had strengthened even when the US elections threw up an unexpected victor in Trump and so it was only natural that after a small correction during the holiday period in December, we should expect status quo and expect the dollar to start going back up again. But that expectation has been belied and except for brief periods of strength, the dollar has been been by and large very weak all across the board and the bounces have been few and far between.

The market is still uncertain on how to price the US dollar. On the one hand, we have the Fed which has made it clear that it is likely to hike rates atleast twice or thrice during the course of the year. This is extremely positive for the US economy in general and the US dollar in particular and should have led to some serious strength. But on the other hand, we have the new Trump administration taking charge and the market wants to adopt a wait and see approach to see how it all pans out with regards to the economic, fiscal, trade and foreign policy of the new government. The market does not know what to expect and is very uncertain in investing either in support or against the dollar and it is this uncertainty that we have been seeing over the last few weeks. Now, we see the EURUSD enter a crucial region around 1.0800-0840 and it will be very interesting to see what the pair does in this region and whether we are going to see a larger correction in this pair.

Looking ahead to today, we have the PMI data from Germany and France and we also have the SC ruling in the UK on its Eurozone membership, which is likely to impact UK a lot but will also have a indirect impact on the Euro. Trade carefully in these volatile markets and make sure that you have tight stop losses.