The euro ceased to keep its upside momentum against the U.S. dollar for the past few days as the dollar climbed against most major currencies. The EUR/USD retreated moderately from a record high by 0.36 percent to end up at $1.23804 on Monday.
Heading into the remaining days this week and next week, the best chance at derailing the EUR/USD rally would be if both Q4’17 GDP and January CPI of the euro-zone area miss expectations, while the FOMC signalled a more hawkish policy path forward.
Since the FOMC meeting on Wednesday is Janet Yellen’s last as Fed Chair before Jerome Powell takes over next month, it is not expected to bring about a significant change in policy given that it is a meeting without a press conference or a new Summary of Economic Projections (SEP) meeting.
The Q4’17 Euro-zone GDP report is expected to show the world’s largest common market grew by +2.7% on an annualized basis, up from +2.6% in the third quarter. This would be fastest rate of growth since Q1’11, when the Euro-zone rose by +2.9%. However, inflation in the Euro-zone remains low which is still not closed to and doesn’t appear to the central bank’s target in the end of the ECB’s QE program.
Such a solid economic reading for the Euro-zone will do little to stop speculation over the European Central Bank’s timeline to taper their QE program, and a significant miss on market expectation would bring greater downside on the EUR/USD.
Technically the pair EUR/USD is confronting a significant barrier bought by the Fibo retracement level (161.8%) while it failed to break out after several attempts signalled by two long shadows at candlesticks.
The next two week’s forecast on the pair is that if both Q4’17 GDP and January CPI of the euro-zone area miss expectations, it tends to retreat to look for some support by 20-day moving average.
Figure 1: EURUSD Daily
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