Macro Analysis Outlook

The Euro has been one of the star performers of 2017. We will now try to determine its main drivers of strength, as well as its potential outlook going forward. 

Drivers of Strength

1. Euro sentiment had been on the bearish side for a prolonged period of time. This was due to a combination of factors such as weak economic data, the Greek crisis and the rise of far-right political parties. This bearish sentiment has now shifted towards the bullish end of the spectrum, resulting in Euro strength.

2. Eurozone economic data are improving. Germany is no longer the main force behind EZ strength; in fact while Germany seems to be reaching a plateau, other EZ countries are emerging and picking up the baton.

3. ECB governor Mario Draghi has recently been less dovish than usual. During the 2017 Jackson Hole Symposium he shared an optimistic outlook and didn’t talk down the Euro’s recent appreciation. This was a departure from his usual stance, which was seen by the markets as being hawkish.

4. ECB members are already discussing the possibility of tightening monetary conditions in the near future. This will probably involve gradual balance sheet reduction as well as interest rate hikes.

5. The danger of Greece – or another country – leaving the Eurozone has diminished substantially. Just a few years ago the possibility of Grexit was looming large, along with the potential domino effect that could even lead to a Eurozone collapse in some extreme scenarios. Today, such events carry an extremely low probability and there seems to be broad stability in the EZ.

6. When the UK voted to leave the European Union, there was uncertainty on both sides of the equation. As Brexit negotiations began, it’s become evident that the UK government is on the back foot. Risks exist on both sides but it seems that the EU is in control of the negotiations at this point.

7. The US Dollar has been weakening markedly in 2017, for a variety of reasons. The most broadly traded & liquid FX pair is EURUSD and it has rallied around 1500 pips from the lows. This EURUSD move has a side effect of pushing other Euro crosses higher (e.g. EURGBP, EURAUD, EURNZD etc) and sending out a picture of broad Euro strength.

8. The combination of rising global geopolitical tensions with US Dollar weakness are sending safe haven flows into the Euro, among other “safe” currencies.

Future Outlook

Following its recent strong run, where does the Euro go from here based on fundamentals? Let’s take each point in turn.

1. As the Euro rallied in 2017, sentiment has become more and more bullish. In fact the DSI index has now flipped to the other extreme, registering a 93 reading on the 28th

2. The Eurozone’s recovery is still relatively fragile overall, just like other major economies around the world. Inflation is still stubbornly below the ECB’s target and it’s hard to see the ECB tightening substantially while inflation remains subdued.

3. Mario Draghi’s tone may have recently turned more hawkish than usual, but central bankers are renowned for being unreliable in such ways. Draghi is well aware that the Eurozone’s exports suffer as the Euro strengthens, so it’s just as probable that he will be dovish again soon.

4. The ECB members’ hawkish speak has created expectations which must now be met.

5. Greece is not a country that’s been “fixed”. Serious structural, fiscal and political problems remain and they will inevitably resurface in due course. Unless the country’s problems are comprehensively addressed, the exit scenario may resurface to haunt the Euro.

6. Brexit negotiations may seem to have the EU in control, but it’s still very early days. EU officials need to make an example of the UK, in order to deter other countries from leaving. On the other hand, the UK is in the top 3 European countries by GDP and an important trading partner to EU countries. Ultimately there will likely be an acceptable compromise for both sides.

7. The DXY has lost around 10% and is bouncing off big support at around 91.5. For the Dollar to lose more ground, the US economy needs to show continued weakness that will warrant ending the current hiking cycle. There is always the possibility of a sustained Dollar bounce and such a move will put pressure on the Euro.

8. Geopolitical tensions are at elevated levels, with the North Korean situation being particularly worrying. However, it’s likely that these are simply political games that will be resolved with politics, with the ensuing risk-on market reaction reversing some of the recent Euro move.


EURUSD weekly

It’s undeniable that the Euro has had a stellar run in 2017. Looking into the fundamentals reasons behind this move however, it’s hard to identify solid reasons why its strength should persist significantly. Having said that, the trend is intact and momentum is strong. The EURUSD in particular is now at a crossroad that will dictate which way the next 500 pips are going.

From a macro viewpoint we think that it’s too late to enter long Euro positions. If strength continues further then the accumulation of short Euro positions will start making a lot of sense..


Technical Analysis Outlook

The EURUSD bottomed at the 1st day of this year (unsurprisingly since we have made plenty of mentions to the importance of seasonality) and rallied almost 17% since. During this rally it has broken above multiple resistance levels with the most important one being the confluence of the large descending channel that held it in a range since the beginning of 2015 and the horizontal resistance at 1.1450 (look at the weekly chart). Yesterday we popped above the 127% Fib from the last move lower (May 2016 to the low) and came near to testing the ascending T/L resistance that has guided the uptrend since March 2017 before turning around and posting a key reversal candlestick. Today's continuation is forming an evening star formation which adds credibility to the corrective scenario. The 1st support area is at 1.1730 which is the confluence of the broken bull flag resistance (expected to be support) and the ascending T/L support. As long as we trade above 1.1450 we expect the move lower to prove corrective.




Any reviews, news, research, analysis, prices or other information contained on this website is provided as general market commentary, does not constitute investment advice and may undergo changes from time to time. Trading the Financial and Currency Markets on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as to your favor. Before entering trading Financial and Currency Markets, you should carefully consider your investment objectives, level of experience and risk appetite. There is a possibility that you could sustain a loss of some or more of your initial investment and therefore you should not invest money which you cannot afford to lose. You should be aware of all the risks associated with Financial and Currency Markets trading, and in case you have any doubt, rather seek advice from an independent financial advisor. FOREXANALYTIX LLC, its owners, employees, agents or affiliates do not give investment advice, therefore FOREXANALYTIX LLC assumes no liability for any loss or damage, including without limitation to, any loss of profit, which may be suffered directly or indirectly from use of or reliance on such information. We strongly encourage consultation with a licensed representative or financial advisor regarding any particular investment or use of any investment strategy. As part of our service we provide “Patterns in Play” (abbreviated as “P.I.P.’s”). These PiPs are derived from certain clearly defined patterns that the team members identify from their analysis. Each PiP is indicated with its corresponding theoretical entry, target and invalidation levels. Please note that these are not trade recommendations; they are simply our team’s interpretation of these patterns and their theoretical levels. Any information or material contained on this website including, but not limited to, its design, layout, look, appearance and graphics is owned by or licensed to FOREXANALYTIX LLC. Reproduction is prohibited without FOREX ANALYTIX LLC prior license in writing.

Analysis feed

FXStreet Trading Signals now available!

Access to real-time signals, community and guidance now!

Latest Analysis

Latest Forex Analysis

Editors’ Picks

EUR/USD bounces after upbeat COVID-19 cure news

EUR/USD is trading above 1.13, rebounding from the lows. Gilead reported that its drug Remdesevir substantially reduces mortality among COVID-19 patients. The news boosted stocks and weighed on the dollar. US coronavirus statistics are due out.


GBP/USD recaptures 1.26 as the market mood improves

GBP/USD is trading above 1.26 as the market mood improves and the safe-haven dollar retreats. Investors are shrugging off Brexit concerns and focusing on hopes to cure coronavirus. US COVID-19 statistics are due out.


XAU/USD consolidates daily gains above $1,800

After advancing to its highest level since September of 2011 at $1,818 on Wednesday, the XAU/USD pair staged a correction and briefly dropped below $1,800 on Thursday.

Gold News

Cryptocurrencies: War for dominance hit the bedrock of the market

Bitcoin tried to regain market share and activated sales in the Altcoin segment. BTC/USD, ETH/USD and XRP/USD are looking for supports and a rebound to push them to new elative highs. The current compression on the XRP/USD chart could trigger an exploding movement.

Read more

WTI once again breaks $40 per barrel after trading lower in early EU trade

There has been quite the bounce in WTI since the EU session after some strong selling pressure during Thursday and overnight. Once again on Friday's session, the price has taken the USD 40 per barrel handle. 

Oil News

Forex Majors