The EUR/USD is in an upward trend since its December 2015 low of 1.0517 and can edge even higher towards the 1.1730 level in the next weeks. However, before the rally, the market is expected to head down towards the 1.1150-1.1065 range first.
Why the EUR/USD is expected to surge:
Dovish Federal Reserve
Since the Federal Reserve hiked interest rates in December 2015, the US central bank has adopted a dovish tone. As of now, there is only a 69 percent chance that there will be a rate hike this December. Yet, we believe that the Fed will increase rates this 2016. Based on the most recent FOMC statement, the central bank is not is a hurry to hike rates and will closely watch the global financial and economic developments.
In order to evaluate the tone of the Federal Reserve, the inflation data and domestic growth must be closely monitored, as the EUR/USD pair immediately reacts to these kinds of economic releases.
Euro zone Economic Growth
Based on the economic projections of the European Central Bank (ECB) as of March, the euro zone’s growth has been revised lower for this year and the following year, compared to the projections on December 2015. However, because of the ECB stimulus, increasing global financial stability, and recovering commodity markets, the euro zone’s economic growth could pick up quickly.
The key indicators that should be monitored to assess the growth in the euro zone include, PMIs, inflation expectations, and HICP.
Various Riskson Environment
Emerging markets’ economic growth slumped, particularly that of China, which caused the capital flight to safe haven assets. Yet, factors such as BoJ andECB monetary stimulus, dovish Fed, stimulus from China, as well as the rally in commodity markets, boosted the risk appetite of market players and triggered a rally in EM currencies, together with the euro.
Traders should closely watch the financial condition of emerging markets, prices of commodities and global stocks, economic data from China, as well as the global growth.
Based on our analysis, the EUR/USD could find buyers between the range of 1.1150 to 1.1065 and edge higher towards 1.1730. At the range of 1.1730 to 1.1800, the EUR/USD pair will offer a selling opportunity, but must be supported the different fundamental factors stated above.
The bullish trend of the greenback is not yet over, and this anticipated rally in the EUR/USD is a counter-trend move. Hence, market players must trade with caution on this market and carefully monitor the various fundamental factors mentioned in this article.