EUR/USD Fundamental Analysis – week of September 4, 2017

The EURUSD pair had a choppy week that was largely bearish and it ended the week at its lows which promises further weakness in the days ahead. The pair did start the week in a very strong manner as the first half of the week saw the pair moving through the 1.20 region as the effect of the speeches from Yellen and Draghi at Jackson Hole dominated the early days of the week. Yellen had chosen not to touch upon the monetary policy and left the dollar at the mercy of the markets.

EURUSD Turns Choppy, Looks Weak

The fact that she did not support the dollar was telling and the market took it as a cue to sell the dollar. Draghi also did not mention anything about the strength of the euro and instead chose to focus on the strength of the eurozone economy. A combination of these led to a large amount of buying in the EURUSD pair which saw it make a high of 1.2070. But then it corrected low and during the second half of the week, we saw the dollar begin to recover as the ADP and GDP data from the US came in much stronger than expected. This promised better times ahead, for the dollar and this led to the first round of correction in the pair.

But the NFP data came in much weaker than expected and this led to another round of dollar selling. The market also realised that a weak NFP is quite normal for the month of August and the selling was tapered. Also, a report came in saying that the ECB would begin to act on tapering only in December and the fact that the report came in immediately after dollar selling showed that the ECB was getting uncomfortable with the strong euro. This led to a large correction in the euro which ended the week near the lows at the 1.1860 region. This weakness is expected to carry into the new week as it is clear that the ECB does not want the euro to strengthen too much too soon.

The increase in the euro strength is likely to affect the eurozone economy and the ECB would want to control that in the short and medium term. The upcoming week brings the focus back into the euro as we have the rate announcement and the press conference from the ECB. The language and the tone will be watched very closely to see hints of any tapering from the ECB. If the ECB is dovish, then we could see another round of selling in the euro which could finally break down the euro and push the EURUSD pair towards the 1.1650 support region.