EUR/USD Fundamental Analysis – week of January 23, 2017

It should be an interesting and volatile week ahead for the EURUSD as the Trump administration has taken charge in the US and as a first measure, sought to repeal Obamacare. It remains to be seen on what campaign promises they are going to follow through upon and whether any changes that are going to be made are going to be drastic or just a tweak here and a tweak there. The market does not like risks and uncertainty but with Trump and his team being an unknown as far as administration and policies are concerned, we are about to see a new dawn for the dollar and this guarantees some large volatility in the coming week.

Last week, we saw the pair restrict itself to a tight consolidation range as it spent most of its time between 1.0600 and 1.0700 unable to decide which way to go. We had the ECB press conference and the rate statement and neither of them added to anything that we already know. The ECB stated that it does not plan to reduce QE in the near future and also that the inflation, though high, should taper and get controlled as the energy prices get stabilised. This did bring in some volatility but since it added nothing new, the move down in the pair was quickly reversed.

Then we had the Fed Chief Yellen making it clear once again that the Fed is likely to hike rates in the coming months if the economic data continues to be as good as it has been over the last few months. This helped to strengthen the dollar across the board for a brief while but the euro showed some remarkable resilience once again and reversed the downward move below 1.0600 once again. It trades just around the 1.0700 region to close the week and looks quite strong, partially due to the risks surrounding the dollar.

Looking ahead to the coming week, we have a couple of important events in Draghi making a speech towards the middle of the week and we also have the Membership Court Ruling in the UK. In general, Draghi does not do much to stir up the markets in his speeches and so we can expect the same this time as well. And, although the court ruling is only for the UK, it is likely to affect the euro as well as any sudden move or decision to block the Brexit process could throw the global markets into turmoil. Assuming that the court ruling is on expected lines, then we can expect the focus to be firmly on the dollar to see if it is able to gain strength.