EUR/USD Monthly Fundamental Forecast – December 2016

EURUSD probably had one of the worst months in recent memory as it had a monthly range of around 800 pips and it ended the month near its monthly lows. The main trigger for the entire move was due to the US Presidential elections and the subsequent election of Trump as the next US President. This was something that was entirely unexpected by the markets which were looking for an easy victory for Hillary and this result caught the markets by surprise.

The initial move was one of shock and this caused a large USD weakness which made the EURUSD pair to skyrocket towards 1.13 but then the move quickly reversed. The market began to realise that like the Brexit vote, such strange anti-establishment voting is likely to become the norm of the day in future and that helped to calm down the markets and also view the result favorably as Trump is a businessman and hence likely to favor business, build jobs and spend a lot on infra. This was generally liked by the markets and this saw the USD weakness being replaced with dollar strength within a few hours and this trend continued till the end of the month.

This caused the pair to be pushed towards historic lows as the strong support region at 1.0550 was severely tested a couple of times but managed to hold the dollar onslaught. We also saw that the data from the US kept getting better and better which more or less confirmed that the Fed would hike rates in December and this helped in pushing the dollar even further higher.

Looking ahead to the coming month, we could see a drop in liquidity and volatility as it is the final month of the year and there are a lot of holidays scheduled towards the end of the month. We also have the Fed meeting in the middle of the month where the market expects the rate hike to be announced and the market will also be looking for guidance on rate hikes in 2017 as well. But despite this, we believe that the region at 1.0550 will continue to hold and we might even see some euro strength beginning to show up and causing a bounce towards 1.0800.