EUR/USD Fundamental Analysis – week of December 18, 2017

It was a week packed with announcements and events but the overall impact on the markets did not match up to the level of the announcements. The reason for that was most of the central banks stuck to the usual scripts and it was only expected as they did not want to roil the markets at the fag end of the year when the liquidity is less. Most of what they set out to do and say in the week was already priced into the markets and hence the impact was pretty less.

EURUSD Spends Time Chopping Around

The ECB kept the rates on hold, as expected. They improved the growth forecasts for the Eurozone but also said that the QE would continue at the current levels till September 2018 which was slightly dovish for the euro. It showed its displeasure at this news by chopping around the 1.18 region following the announcement.

Then there was the Fed which went one step ahead by hiking rates. But again, this was on expected lines and was already priced into the markets. So, the traders paid close attention to the statement and the speech from Yellen where they dumbed down the inflation forecasts and improved the growth forecasts for the next year. We also saw that a couple of members had dissented against the rate hike and this was dovish for the dollar and this only added to the choppiness in the markets. At the end of the week, the EURUSD pair continues to trade within the range which it had set itself over the last few months.

Looking ahead to the coming week, the GDP data from the US is the only economic event of note. The tax reform bill in the US seems to be well on its way to getting passed and once the confirmation for that comes in, we should see the dollar strengthen a bit more. But with the holidays almost on us by now, we do not expect any massive movements at this point of time and it should be a general wind down for the rest of the year.