EUR/USD Fundamental Analysis – week of October 30, 2017

The EURUSD pair crashed lower during the course of the week due to a combination of the ECB pulling the rug from under the euro and the dollar beginning its ascent that has been long due for the dollar bulls. This has pushed the EURUSD from above 1.18 to below 1.16 and it ended the week just above the support region at 1.1580 but it clearly looks as though the trend has changed as far as this pair is concerned.

EURUSD Crashes Lower

The week began in a steady manner as the euro managed to hold its own and the pair was held up by the traders and investors in anticipation of the ECB later in the week. The market was expecting the ECB to announce the tapering of the QE and the market also believed that the tapering would be done pretty quickly which would be very hawkish for the euro. This kind of expectation carried the pair above 1.18 as it headed into the ECB announcement and press conference.

But what followed was total disappointment for the euro bulls as the ECB, though it did cut down on the QE, extended the QE program to beyond September 2018. This was way beyond the expectations of the market, as far as the timeline was concerned and such an action from the ECB, despite the improvement in the incoming data from the Eurozone, meant that this announcement was followed by a large selling of the euro. This almost coincided with reports that said that John Taylor, a well know hawk, could be the next Fed Chair and this helped to boost the dollar and place the EURUSD pair under even more pressure. The US GDP also came in stronger than expectations and this increased the chances of a rate hike from the Fed in December.

If this volatility was not enough, we have even more volatility lined up for the coming week as it marks the end of the month and a beginning of the new one. We are likely to have a lot of month end currency flows and this will then be followed by the employment data from the US and a host of other data including the wages data as well. These are likely to have a huge impact on the market as some strong data in these would more or less confirm a Fed rate hike in December. Traders should brace themselves for more volatility in the upcoming week and would be well served to trade with tight stop losses.