EUR/USD Monthly Forecast – July 2017

The EURUSD pair continued its rise over the month of June and this basically is a continuation of the upward trend that we have been seeing in this pair over the past few months, since the beginning of the year. To think about it, it was only during the last Fed rate hike in December that we had a decent dollar strength and after a short period of that, we have been seeing the euro move higher and higher over the last few months. There was a brief period when the pair did seem to stall at the 1.13 region but with the trend clearly being up, it was only a matter of time that it broke through and it did happen during the month of June.

EURUSD Continues Uptrend

The fact that the pair continued its uptrend with no signs of a let up in a month when the Fed hiked rates is a telling commentary on the strength of the euro and also on the weakness of the dollar, at the same time. The dollar has been clearly on the backfoot and any bounce in dollar strength has been quickly sold off. Last month, we saw the Fed push through with the rate hike despite the fact that the economic data over the last few weeks from the US, has been quite bad. In fact, so bad that for a brief while, it felt as though the Fed might backtrack and not hike the rates after all.

But the Fed did go through and chose to brush aside the bad data as just a blip in the economy which was likely to go away quite soon and would be replaced by some strong data  in the coming months. The markets did not seem to be too convinced about this and though there was a dollar bull run for a few days, it did not last too long and the euro strength returned in due course of time.

Dollar on The Backfoot

The euro strength was brought about by comments from Draghi who said that the ECB was quite close to looking at tapering of the QE. This was a huge boost for the euro and this was the trigger which helped the EURUSD push through 1.13 towards the second half of the month and this break through the range highs was enough for the bulls to keep pushing the pair higher and higher and it closed the month comfortably above 1.14. Though there was a clarification stating that Draghi wasnt as hawkish as the market had felt he was, it was not enough to stop the bull run in the pair. The bull run was further helped by the policy paralysis in the US as the Trump team struggled to push through the healthcare reform bill which ensured that the dollar continued to trade weakly across the board to end the month.

EURUSD Likely to Face Stiff Resistance

Looking ahead to the coming month, the market is likely to view all the incoming data from the US very closely. Over the last couple of months, the data from the US has not been spectacular and though many of the data points have missed the expectations, they were just enough to encourage the Fed to go for a rate hike. But, going forward, the Fed would like to see some strong data for it to start thinking about the next rate hike which the markets expects to arrive in September. On the other hand, we are seeing a clear reversal in the policy from the ECB, BOE and the BOC and also very strong data from these countries and this has strengthened their respective currencies and also helped to keep the dollar weak.

The normally bearish ECB themselves could not continue to sound bearish any longer and had to switch their tone to being bullish during the course of the last few weeks, in response to the strong data from the Eurozone during this time. We expect the data from the Eurozone to continue to be strong in the coming month and unless we see some strong data from the US, we could see the EURUSD pair make a move towards 1.16 and beyond. There is likely to be a lot of selling strength in the region between 1.1450 and 1.1550 and with this in mind, it would be better for traders and investors to wait for the price to cross this region before thinking of going long again on this pair. Else a strong against this resistance region, in the hope of some strong data from the US, would be a good choice.