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EUR/USD Weekly Forecast December 19-23
EUR/USD declined for a second consecutive week as the Fed meeting added to the bearish fundamental outlook for the pair. The decline served to take out important support from prior lows set in the first quarter of 2015 and the pair closed at the lowest level since early 2003.Recent developments have created a strong bearish fundamental case for EUR/USD. Initially, the US elections precipitated a drop in the exchange rate as the Dollar broadly rallied on market expectations that the Trump administration will boost the US economy. The ECB added to the bearish scenario by extending their bond purchasing program at their meeting in the prior week. With a political driver from the United States already in place, the Fed meeting provided an economic driver as continued improvements to the economy have provoked the central bank to revise up their projected path for normalization in 2017.
Aside from some Euro demand generated by more recent gains in the European equity markets, there is little reason for a rise in the single currency and the three strong fundamental drivers outlined will tend to put continued pressure on the EUR/USD exchange rate.
Adding to the bearish scenario is the technical break that has occurred during the past week. A push below the March 2015 low of 1.0462 has signaled a continuation of the longer-term downtrend in the pair that is seen on a weekly and monthly chart. The technical break this past week has taken the pair out of a consolidation that lasted 21 months.
The trade-weighted US Dollar index has diverged slightly from the EUR/USD exchange rate as of late and had broken out of consolidation in the week of the US election. An important 61.8% Fibonacci level measured from 2002 highs to 2008 lows had held the index lower ahead of the Fed meeting, but a technical break this past week above the level signals a continuation.
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