The EURUSD has finished the year 2017 on a very strong uptrend and it remains to be seen if we have more legs to the upside in 2018. After the Fed has delivered on its rate hike forecasts now the focus in 2018 will shift toward the ECB and a possible timeline for QE tapering which, at least in theory should support the bullish case.
The Fed has raised their 2018 growth forecast and now the consensus is that the Fed will continue on its current aggressive path to raise the rates 3 times in 2018. On the other side of the monetary policy spectrum, we have the ECB which has signaled that it might start unwinding their balance sheet, now that the inflation is close to reaching the ECB target. In essence, the EURUSD was driven by both central banks: the Fed and the ECB.
For the time being the ECB is expected to keep the 2.3 trillion assets purchasing program beyond September 2018 which can still have a negative impact on the EURUSD exchange rate. Usually, the first month of a new year is set to be a very active month and can give us the trend of the year depending on which side we break. The January seasonal pattern sees the US dollar having a strong bullish run which means that the current EUR/USD can see a retracement.
The seasonal pattern only gives us the tendency of a particular currency to exhibit a certain behavior at a certain time, so we have to carefully monitor the pattern and how the fundamental forces interact with the price action. Going forward into 2018, we’re going to analyze and disseminate the major news event for the upcoming month that can be the catalyst for higher EURUSD volatility.
“Don’t risk significant money in front of key reports, since that is gambling not trading.”
– Paul Tudor Jones
Monthly Forex News Events that Might Affect EURUSD Volatility – Jan 2018
We have to keep in mind that the first month of the year can give the tone for the rest of the year and since the Fed has appointed a new chairman his views on monetary policy will be scrutinized more closely by the market. Now, let’s move forward and see what the biggest risk events in January 2018 are:
- Monday, January 1, 2018 – The first day of the New Year will see the Forex market closed so no trading activity will take place.
- Wednesday, January 3, 2017 – The German unemployment rate are scheduled to be released. The unemployment rate is at the lowest level since 1990 after it fell to 5.3%.
- Friday, January 5, 2018 – First Friday of the new month will bring the NFP job report, which can be the catalyst for some trend development. The market consensus is again for a figure above the 200k mark after we saw a very healthy labor market in 2017 that has sent the unemployment rate to 4.2% a 17-year low.
- Thursday, January 11, 2018 – The ECB monetary policy meeting accounts will give traders further clues on the ECB’s next steps.
- Friday, January 12, 2018 – The US CPI inflation figures are the main risk event of the week. The moderation in the inflation will certainly hinder on the Fed ability to hike more so any miss in the CPI inflation figures can be negative for the dollar. Current CPI annualized inflation rate still stands above Fed’s target at 2.2% but it’s still off the 2017 high which was at 2.7%.
- Thursday, January 25, 2018 – The ECB interest rate decision and monetary policy announcement is the highlight of the month because the ECB can set the monetary policy guideline for the entire year.
- Friday, January 26, 2018 – The US GDP figures for the last quarter of 2017 are scheduled to be released. The market consensus is expected to see the US economy posting another solid quarter after it grew by 3.2% in the Q3.
- Tuesday, January 30, 2018 – The EU GDP figures for the last quarter of 2017 are scheduled to be released. The EU economy is still expected to fall behind the US economic growth.
- Wednesday, January 31, 2018 – The Fed will announce its interest rate policy and the market consensus is for no major change in the monetary policy. However, the Fed can set the tone for the entire year.
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