EUR/USD Fundamental Analysis – week of February 19, 2018

It was another week that the euro tried to gain in strength and break through the highs of its range but ultimately it failed to do so again. It has been trying to break through for the past few weeks and despite two or three attempts, it has failed to do so and this increases the pressure on the euro bulls and this should give a lot of confidence to the dollar bulls that the worst is probably over.

EURUSD Fails At the Highs Again

Last week, we saw the dollar on the backfoot for much of the week for no apparent reason. The incoming data from the US was choppy with the retail sales coming in worser than expected and the inflation data coming in better than expected but this was interpreted as bearish for the dollar as the market pared some of the buying that it had done in anticipation of the Fed looking to push through more than 3 rate hikes for the year with the data getting better and better. But still, we did not believe that the dollar needed to be so weak and so sold into.

The EURUSD rose through the 1.25 region on the broad based weakness in the dollar and for a brief while, it appeared as though the pair would break through the range highs. But then the selling began and it led to a large scale correction in the pair on Friday. Though various reasons have been attributed to the bounce in the dollar, we continue to believe that this move higher and then the correction is more a technical thing than having anything to do with fundamental developments.

Looking ahead to the coming week, we are into the second half of the month when the data and the news begins to dry up in a slow and steady manner and the market volatility begins to lessen. True to that, the only event of note from the US would be the FOMC meeting minutes which would be released towards the middle of the week and the traders would be looking forward to it for signals of when the next rate hike would be and also for signals on the timelines for the rest of the rate hikes this year. If the minutes turn out to be hawkish, then we should see a full recovery in the dollar.