The EURUSD has continued to outperform in 2018 resuming the bullish trend left in 2017. There are no sights that the current bullish run is over. Not even the January ECB monetary policy decision could derail the bullish momentum. While we might see EURUSD overbought we still need a strong fundamental driver to change the momentum to the downside.
The Fed is still expected to hike the benchmark interest rate three times this year. However, on the other side of the monetary policy spectrum, we have the ECB which according to many voices from the board members we can expect QE unwinding to start in the summer.
In essence, the EURUSD s driven by both central banks: the Fed and the ECB. The ECB President Mario Draghi has expressed some worries over the recent Euro strength. This will make it harder for the ECB to implement an exit strategy of its quantitative easing program.
After a very volatile and active month of January, we’re headed into a period of more volatility due to the disconnection between the current fundamentals and the currency exchange rates. The February seasonal pattern sees the US dollar having a strong range bound activity that can see EURUSD spiking on both sides of the market.
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, 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 – Feb 2018
Governor Jerome Powell, Yellen successor will become the new Fed Chairman as Yellen’s four-year term as the Fed chief will come to an end early February. Powell has a more moderate rhetoric when it comes to the monetary policy.
However, Powell is expected to follow the gradual interest rate increase policy of Yellen and in this regard, there is lots of predictability which markets love.
Now, let’s move forward and see what the biggest risk events in February 2018 are:
- Thursday, February 1, 2018 – The first day of February will bring the ISM Manufacturing PMI which advanced to their fastest pace since 2004 showing a robust activity in the manufacturing sector.
- Friday, February 2, 2018 – First Friday of the new month will bring the NFP job report, which can be the catalyst for some trend development. The Non-Farm payrolls only grow by a modest 148k in December and the market consensus is again for a figure near the 200k mark. We saw a healthy labor market in 2017 that has sent the unemployment rate to 4.1% a 17-year low, a trend that is expected to continue in 2018 as well.
- Wednesday, February 8, 2018 – The ECB monetary policy meeting accounts will give traders further clues on the ECB’s next steps.
- Wednesday, February 14, 2018 – The US CPI inflation figures is an important news event for the market. In December we saw consumer inflation posting the largest increase in the latest 11 months reaching 2.1%.
- Thursday, February 15, 2018 – The German GDP for the last quarter of 2017 and the Euro zone GDP is scheduled to be released. The German economy grows by 2.3% while the EU zone economy grows by 2.2% the fastest pace in a decade.
- Monday, February 19, 2018 – We have the US President’s Day which means that we’ll have low level of trading activity.
- Wednesday, February 28, 2018 – The preliminary US GDP figures are scheduled to be released. The initial US GDP figures only showed that the US economy grows at a modest pace of 2.6% versus a 3% reading.
The ECB and the Fed don’t have monetary policy decisions scheduled for this month of February.
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