EUR/USD Monthly Forecast – August 2017

The EURUSD pair had a very bullish month in July and it has to be noted that this has been the case since April. From that month onwards, we have seen the EURUSD pair rise by over 1000 pips which is something unnatural for a pair like this one. EURUSD generally tends to stick itself to specific patterns which do not facilitate much movement in either direction. Even if there is a trend, it is usually met by long periods of consolidation and correction but in this case, the pair has just gone on and on over the last 4 months with so signs of any deep correction.

EURUSD Continues to Stay Strong

One of the primary reasons for this is the fact that both the dollar and the euro have facilitated such a trend. Normally, we either see the euro strong and the dollar weak and rarely do we see both moving in opposite directions. This helps to control the trend and also slow it down. But over the last 4 months we have seen the dollar being weak all across the board while the euro has been very strong.

The strength in the euro has been brought about by the improvement in the economic data from the Eurozone. The economic data has progressively become stronger and stronger and this has provided the ECB with much more choice. If the data had been weak, the ECB would have been forced to continue with their QE program but the strong data has helped the ECB to have options available for it which helps it to decide whether it wants to taper and if it does, when it would want to do so.

ECB Contemplating Tapering

This availability of choice has been duly acknowledged and obliged as they have dropped enough hints over the last month or so that they are seriously thinking about tapering the QE program. Though the ECB has not explicitly stated so and in fact, the ECB President Draghi has been quick to point out the weaknesses in the economy, the market is still very much convinced that the ECB is likely to taper pretty soon. The traders and the investors expect the tapering talk to gain momentum after the summer and this has helped to strengthen the euro.

On the other hand, we are finding the dollar being hit on all sides with nothing to support it. The dollar has been sold off on the back of bad data and the data has continued to be bad till the end of the month making the outlook very weak. We are also finding that this dollar weakness might be part of a policy decision from the Trump administration and that is the reason why we have not found any statement or any kind of support from the Fed for the dollar over the last couple of months. Add to this the fact that the Trump administration is in quite a muddle and then you get the full picture of the dollar weakness.

The Trump team has failed to garner enough support from within their own Republican party for the reform in the healthcare bill and the failure to do this has caused uncertainty in the market on whether they would be able to get other bills, like the tax cut plan, through. On the other hand, we are finding some wholesale changes in the White House team on a weekly basis and this is not good for consistency as far as policy making is concerned. This is also weighing on the dollar which is seeing some major sell off over the last couple of months.

EURUSD Facing Some Stiff Resistance

Looking ahead to the coming month, as expected, the first week or two of the new month is likely to be very crucial as we await a slew of data from the various countries around the world. Particular attention will be paid to the data from the US to see if there is any end in sight to the trend of weak data from the US. The dollar bulls would surely wish that they see it pretty quickly. On the other hand, we are coming into view of a host of strong resistances where a lot of selling is expected. The EURUSD pair had already slowed down on its upmove during the end of July and we expect the region between 1.17 and 1.19 to witness a lot of selling and correction as well.

If that happens, then we could see the pair move into the 1.15 region as part of a larger correction but unless we see some specific fundamental signs, we do not believe that the uptrend in this pair is over yet. If the pair does not make it through to 1.19, then that opens up 1.25 in the medium term.