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Forex Fundamental Analysis

Thu,13 Oct 2016-   FundamentalOutlook

EURUSD Trading
As The EUR/USD pair is a combination of liquidity and volatility. The US dollar is both the worlds most profoundly traded and most extensively held currency. The currency of the European Union, the euro, is the worlds second most popular currency, since it contains the two most popular currencies in the world.

The primary issue that influences the direction of the EUR/USD pair is the relative strength of the two economies. A faster growing US economy strengthens the dollar against the euro, and a faster growing European Union economy strengthens the euro against the dollar. One key sign of the relative strength of the two economies is the level of interest rates.

The euro currency has shown mixed demand despite of the fact that consistently Eurozone is having solid economic stats.  The main reason which can be the result of such mixed results is firstly the dollar which is the biggest rival currency of euro that got much strength and secondly the ECBs (European Central Bank) monetary tightening is expected to remain low. As Yves Mersch, an ECB official quantified on Tuesday that” the Eurozones economic resilience to economic and political shockwaves is largely due to the ECBs ultra-eased monetary policy”.

Whereas the USD is gaining momentum across the sheet and demand for the U.S Dollar, has been kept afloat by the higher probabilities of the looming interest rate hike by Fed that stemmed in USD exchange rate to appreciate in value consistently and steadily. Whereas the expectations about dollar with reference to previous results and findings by analysts and economists are

  •  Rates will stay lower for longer;
  • When the Fed raises rates to their terminal level, it will be lower than previously believed; and
  •  As a result, the US Dollars future may not be quite bullish.

Whereas there is markets hope that in December 2016, US interest rates will append as there is an anticipation of US economy to be highly stable during the course of November. As when interest rate increases it attracts capital and the value of currency appreciates those results in the incentive to invest to increase which results in higher returns that results in incentive to spend to decrease which makes purchases more expensive.

As the FOMC minutes were shared today, were the same as expected but it showed three mutineers who wanted an immediate interest rate hike. The market by some means took this as being hawkish and this increased the USD strength as the pair then crashed after the minutes were released. So there is an expectation of this pair to follow a downward trend but fingers are still crossed as Eurozone will definitely take a precise step to overcome this gap.

Based on this information its expected that the pair will be in downward trend till the Eurozone take a definite step so the technical analyst should make decision accordingly by not making investors bear a loss. As “price goes up because of greed, and it goes down because of fear, and fear is much stronger than greed, and so it causes the price to go down much faster compared to the time it goes up”. Being euro/usd to be amongst major pair in trading so this greed and fear game is and will always be a part of it.

Aimen Tayyab
Financial Analyst