Good day forex traders.
Welcome to a new week of forex trading. Hope that everyone will have an excellent performance ahead.
In the previous forecast we noted of the possibility of the double dip on the weekly chart. For this to materialise, a key consideration will be continued US dollar strength.
Looking at the EUR/USD weekly chart above we note that the currency pair is consolidating at the support and resistance region of 1.06. This is a region with much activities for weeks and the EUR/USD will need to overcome this support before any further bearish momentum.
CNBC had an interesting report on the case for US dollar weakness. ”
The dollar’s recent downdraft hasn’t ended, with further weakness likely ahead, Dominic Schnider, head of Asia-Pacific foreign exchange at UBS, told CNBC’s “Squawk Box” on Monday.
The dollar index, which measures the greenback against a basket of currencies, was trading as high as 100.47 in Asia trade, that’s up from as low as 100.01 in Asia trade on Thursday, but off levels around 100.50 touched in U.S. hours Thursday.
The index was above 101 early last week, but took a hit after U.S. President Donald Trump complained the currency was “getting too strong” in an interview with The Wall Street Journal. Schnider expected the dollar would fall further.
“The starting point for the dollar into 2017 was just very, very rich in terms of valuation,” he said. In January, the dollar index climbed over 103.
“As we see more disappointment, from Trump’s policies and at the same time, the world outside the U.S. looks better, I think we’re still going to see that continuation of dollar weakness. It’s not going to be a weak currency, but the dollar continues to slide on a trade-weighted basis,” Schnider said.
He expected the greenback would see a “mid-single-digit decline” on a trade-weighted basis.
That relative weakness can mainly be laid at Europe’s door, he noted. The dollar index is heavily weighted toward the euro.
“We do think the euro is heavily undervalued, with a chance that actually the ECB might taper in the second half of the year, then the euro/dollar should see a decent recovery,” he said.
The European Central Bank has planned to buy 60 billion euros of bonds every month this year, but analysts have expected that would cease next year, or even earlier, if the economy continued to show improvement.
Schnider forecast the pair could rise to as high as 1.20 over the next six to 12 months; the euro/dollar was at 1.0622 in Asia morning trade on Thursday.”