EUR/USD Fundamental Analysis – week of December 19, 2016

EURUSD had a very volatile week as it finally came across one of the most important weeks this year. Last week was the one when the Fed announced the rate hike, which the market has been expecting for many months now. The markets had in fact priced in the rate hike by 100% literally forcing the hand of the Fed to follow suit. But the center of attention last week was not the actual rate hike but the following statement and the press conference from Yellen.

The statement the press meet turned out to be much more hawkish than what the market was expecting. Both of these gave out enough hints to show that the markets can safely expect 2 or 3 rate hikes in 2017. The market did not expect such explicit and hawkish hints and this was enough for the bulls to starting the dollar buying spree which lasted for the rest of the week. This caused the EURUSD pair to crash through the strong support at 1.0500 and extend its fall till the 1.0350 region. This is the lowest that the pair has been since 2002 and technically, there is nothing between where the pair is right now and parity. Many in the market believe that it is only a matter of time before the pair reaches parity as the market begins to price in further rate hikes that are due in 2017. We believe that the dollar bullishness would continue to sometime but traders need to be careful as we are approaching the end of the year and the liquidity is likely to dry up in the coming weeks and this means that the price could easily be moved this way and that.

Looking ahead to the coming week, we have the German Ifo Business Climate which could continue the trend of improving data from the Eurozone. We also have the GDP from the US but irrespective of the data, we believe that the medium term trend has been set in this pair and any kind of bounce can be safely sold into.

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