EUR/USD Monthly Forecast – November 2017

The EURUSD pair had a generally difficult month with it closing the month near the lows of its range. It was not all one way traffic though, through the course of the month, as the pair did enjoy a brief trip to the highs of its range but every time it managed to do so, it was met with a lot of selling which pushed back the pair as the dollar held steady throughout the month and ended the month in a strong manner which bodes well for the dollar in the coming month of November.

EURUSD Starts the Month Strong

The early half of the month was marked by the euro making highs of the year as the incoming data from the US turned out to be very weak. It was good that the month passed off peacefully without any major risk from the Korean region, something that had dominated the markets in the previous month. But the choppiness of the incoming data from the US meant that the EURUSD pair managed to trade above the 1.18 region during most of the first half of the month though it could not break through the 1.19 region.

Investors and the dollar bulls were expecting the employment reports from the US to be strong during this period but this series of data also disappointed the markets as the data turned out to be choppy. But as the euro found it difficult to break through the 1.19 region, the weakness in the pair began to set in and the dollar began to hold steady. It was also the period during which reports and speculation began about the next ed Chair who would succeed Yellen and many names were bandied about that included the hawkish John Taylor and the nominal Powell and the strength of the dollar varied depending on how the rumor of the next Fed Chair turned out.

The real action in the pair came about only during the second half of the month as the speculation on the next Fed Chair and what the ECB had planned for the tapering of the QE began to grow slowly. It was also the period when the incoming data from the US began to become more steady and all the eyes were now on the ECB. The ECB, though, had different ideas in its mind as it churned out a shocker for the markets.

EURUSD Weakened by ECB Decision

The investors and the markets were expecting that the ECB would quickly taper the QE and that the QE would end pretty soon. They were led into this belief based on the general hawkishness in the ECB and also due to the strong data from the Eurozone. But the ECB made it clear that it was in no mood to cut the QE altogether. It did cut down on the size of the QE but also extended the program to beyond September 2018. This was much more than what the market had expected and they showed their displeasure by selling off the euro. This led the euro to fall by over 200 pips as it fell from above 1.18 to below 1.17 and it ended the month near the lows of the range just above 1.16.

Looking ahead to the month of November, the focus is likely to shift away from the euro and the eurozone and it is likely to lay squarely on the dollar. The market has started to price in a rate hike from the Fed in December, over the last few weeks. Though the incoming data has not been strong enough to confirm such a rate hike and the Fed members have kept their cards close to their chest, the market, as usual, likes to get ahead of itself and this has led to the situation of the dollar getting stronger in anticipation of the rate hike. The first week of the month of November is likely to determine whether the incoming data would be enough for the hike and if it does so, then we should see the dollar gain further in strength.

This should place a lot of pressure on the EURUSD pair which can then be led lower towards the 1.12 region in the medium term. With the extension of the QE program by the ECB, we notice a distinct change of trend beginning to take place in this pair and we should see the new downtrend begin to take shape in the coming month and that is the reason why we are looking at lower prices for the pair in the month of November. Every bounce in this pair should be viewed as an opportunity to go short on this pair in the new month.