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EUR/USD Fundamental Analysis – week of February 26, 2018

By:
Colin First
Published: Feb 24, 2018, 10:37 UTC

The pair is likely to be under pressure in the short term as the anticipation over the next rate hike in the US grows

EURUSD Weekly

The EURUSD pair ended the week lower than what it had started and this has led to fear and uncertainty on whether this leg lower would continue in the coming week. The previous week had seen the focus firmly on the dollar as the anticipation over the future rate hikes from the Fed began to gain in credence and this led the pair lower. It managed to find some support in the 1.2240 region in due course of time but it remains to be seen how long this support would hold.

EURUSD Moves Lower

The dollar had a strong week as it was able to gain even against the euro despite the fact that the euro had been rising and had been bullish due to the improvement in the incoming data and also due to the expectation that the QE tapering is around the corner and we are about to see the ECB begin to raise rates from next year. But the dollar was boosted by the FOMC meeting minutes which came in during the middle of the week.

EURUSD Daily
EURUSD Daily

This minutes was expected to be hawkish and in anticipation, we saw tha traders begin to buy the dollar right from the beginning of the week. The minutes did not spell out the next rate hike directly but on further perusal of the minutes, it became apparent that the Fed was looking for 3 rate hikes during the course of the year. The tone of the minutes was so hawkish that the Fed could be seen to hike rates even 4 times this year as long as the incoming data remained strong. This was enough for the dollar bulls to buy the dollar in large quantities which placed the euro under pressure.

Looking ahead to the coming week, it would be a week which sees the end of the month and the beginning of a new one. Hence, we are likely to see a lot of month end flows and positioning towards the middle of the week as the traders jostle with each other to close their monthly books. We also have some speeches from Draghi and also the new Fed Chief Powell is set to testify and this is likely to give an idea to the market on his line of thinking as far as monetary policy is concerned. We also have the GDP data from the US and a combination of all the above should ensure that we have a very volatile week of trading ahead of us.

About the Author

Colin specializes in developing trading strategies and analyze financial instruments both technically and fundamentally. Colin holds a Bachelor of Engineering From Milwaukee University.

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