EUR/USD Monthly Forecast – October 2017

The EURUSD pair ended the month in the middle of its range which reflects the uncertainty among the traders in the pair. The month of September saw the Euro trade in a strong manner for the first couple of weeks, only to weaken towards the end of the month leading to some choppy action as the oversold dollar staged a rebound towards the end of the month. This has led to an interesting month ahead, a month where we believe that there is s good chance that the tide could turn and we could see the dollar strength hold the upper hand in trading.

EURUSD Likely to Stay Weak

The first day of the month saw the release of the NFP and that came in lower than expected and the previous month data was also revised downwards. The wages report was also weak and with these reports being 2 of the most important ones in a month, we saw the Euro shoot higher. But this was tempered by the realisation that historically, the NFP data is weak during September due to a quirk in the way that the data is calculated. This led to some decent 2 way action in the EURUSD pair with a bullish bias which continued for the first couple of weeks of the month.

During this period, it became gradually clear that the other incoming data were getting slightly better and there began hopes of a rate hike from the Fed in December. Though the Fed did not confirm or deny it during this period, the market continued to view the incoming data in a positive manner and waited for the FOMC later in the month to decide on whether it wanted to buy the dollar or not. This helped the euro to rise during this period and it rose towards the 1.2070 region but could not break through it.

There was a period of a few days when the pair tried to break through but couldnt and it gave away signs of an imminent dollar rebound. This came along when the FOMC statement was released and it showed that the Fed members continued to leave the door open for a rate hike in December. This was enough for the dollar to rebound which led the euro lower through 1.18 and towards 1.17 before a bounce later in the month helped the EURUSD pair to move above 1.18 to close the month.

Trend Change Possible

Looking ahead to the coming month, for those who believe in trading seasons and trading periods, we believe that October would be an apt time for the dollar to rebound. Historically, this month has led to a change in trend which last for the medium term and we believe that the signs are there for the dollar rebound. The Fed is likely to watch the incoming data very closely and if the data from the US continues to be strong, we are likely to see the dollar continue to strengthen in the short and medium term as well.

On the other hand, the talk of QE tapering continues to go on and though Draghi has tried to talk it down, he has been unable to do so. The data from the Eurozone continues to be strong and hence it is indeed a balancing act for the ECB not to sound hawkish but also acknowledge the strong incoming data at the same time. This has made the euro quite resilient in recent times and the Euro is likely to continue to stay bid as long as the talk of tapering lasts in the markets.

All in all, things point to an interesting month in October where there is likely to be a good battle between the bears and the bulls for control with the dollar looking to rebound. As said before, we are seeing signs of a dollar rebound but that is likely to be known in the first week of the month when all the data comes in including the NFP report. A strong employment is likely to make the job easier for the Fed and that would be enough for the market to being buying the dollar in the upcoming month. If it happens, then we could see the EURUSD pair moving towards 1.15 and lower in the coming month.