The Day of the EUR

It’s the final day of the year and many will be breathing a sigh of relief, the year having been a particularly tough one, rounded off in style with a Trump victory that has driven the Dollar through to the final week of the year with some sizeable gains, the EUR faring pretty well, down just 5.2% going into Christmas, when compared with the Yen or the Australian Dollar, which have fallen 11.6% and 7.6% respectively over the same period.

The lighter trading volume this week has placed the Dollar under pressure as the markets look to lock in profits ahead of the New Year, with some degree of uncertainty on whether the rally can continue weighing on the Dollar in the final days of the year.

It’ certainly a treacherous period for trading, the EUR hitting an intraday high of $1.0653 in the Asian session before easing back to $1.0531 at the time of the report, with no economic data or market news to cause the spike, which wasn’t quite as dramatic as the pound’s flash crash, but certainly unwarranted.

Macroeconomic data out of the Eurozone has been relatively stable in recent weeks, but the reality remains that there are plenty of headwinds for the European markets to navigate through in the coming year, with geo-political risk expected to be on the rise from the turn of the year.

The known risks are of course, possible downside to the European economy should the pound continue to weaken and Britain be forced into a hard-Brexit, the UK considered a key trading partner with the EU, reflected in its trade deficit, with elections in Holland, France and Germany also there for the markets to consider and that’s before considering the impact of any trade war with China and a review of trade terms by the Trump’s administration come January 20^th.

With economic data out of the Eurozone this morning limited Spain’s inflation figures for December, the stats are unlikely to be given much attention by the markets, with the Dollar likely to claw back some of the day’s losses before the close, though any upside for the Dollar is unlikely against the EUR with the markets locking in profits before the end of the year.

It will certainly be an interesting start to the year, the real question likely to remain whether the Dollar has been overbought.

The lack of macroeconomic data has hindered the Dollar’s rally, with November’s goods trade deficit widening according to figures released on Thursday a reminder of the effects of a stronger Dollar on the U.S economy and corporate earnings.

The markets will be looking for any indications on when Trump will be rolling out the anticipated fiscal stimulus package and begin to speculate on the timing of the FED’s first of a likely 4 rate hikes, the combination expected to dictate the direction of the Dollar and bring the Dollar in sight of parity with the EUR in the first quarter, all of which will be dependent upon how China’s economy responds to Trump, capital outflows, tightening monetary policy and a possible credit crunch.