EUR/USD Monthly Forecast – December 2017

The EURUSD had a pretty strong month of November as it closed slightly above 1.19 and looks set to continue its bullish move higher. A combination of weakness in the dollar and the fact that the euro continued to hold steady during this period has helped the pair  to continue its bullish run during the course of the month, setting itself up for a break through the 1.20 region as we enter into the final month of the year, when the liquidity is expected to dry up, on account of the holidays later in the month.

EURUSD Stays Strong

The pair started the month in a steady manner but the fact that the pair refused to fall was enough indication of the strength that was underlying. Though there was no specifi event that led to the weakening of the dollar, it was a slow, steady move lower for the dollar during the course of the month. There were many events that contributed to this, chief of which was the FOMC meeting minutes which was more dovish than what the market had expected it to be. While the minutes did show that the Fed members were inclined for a rate hike in December, this was already priced into the markets and hence the impact of the same was pretty low.

What the traders were looking forward to was the projection of further rate hikes in 2018 but many of the Fed members were still undecided on the same. They were of the opinion that the inflation was not yet up to the target and this kind of wavering was considered as dovish and led to the slow drop of the dollar. Added to this was the fact that in the beginning of the 2018, we are going to see the Fed have a new chief in Powell and the market is still uncertain of what to expect from him. There has not been much signs of whether he would be a hawkish or dovish Chief and this uncertainty and weakened the dollar even more.

On the other hand, the euro has managed to hold steady despite the political turmoil in Germany where Merkel has been unable to thrash out a coalition after the pulling out of the FPD party from the coalition talks. This led to a brief period of weakness for the euro but it managed to recover as traders continue to believe that Merkel would finally be able to bring out some coalition which would enable her to keep. The progress in the Brexit talks through the course of the month has also helped to keep the euro strong during this period and has led the pair higher.

EURUSD Expected to Push Higher

Looking ahead to the coming month of December, there is going to a lot of holidays in the market on account of the New Year and Christmas and so we can expect some decent liquidity only for the first half of the month. This is going to be a challenge for the traders as it is likely that some of the major traders would want to push the pair in either direction, making use of the lack of liquidity in the markets.

We are also going to see the Fed announce, in all probability, the next rate hike in the US and this is likely to keep the dollar buoyed as we head into the fag end of the year. But on the other hand, the outlook for 2018 is not good for the dollar at this point of time and the market would like to see more clarity and more strength in the incoming data from the US. The euro is likely to be kept strong by the progress of the coalition talks in Germany and we also expect some sort of a deal to be announced as part of the Brexit talks during the first half of the month. This should again be a boost for the euro and we expect the EURUSD pair to challenge the 1.20 region during the early part of the month and if the breakout is quick, then the pair is likely to continue higher but if the breakout fails and we do not have the breakout by the middle of the month, then we are likely to see the pair move back into its range and continue within the range for the rest of the month.