EUR/USD Pair Trends Towards Parity

The Thanksgiving weekend begins on Thursday, 24 November 2016. US markets will be closed, and this will certainly temper currency trading activity dramatically. However, in the lead up to the holidays, the USD has been making strong gains against its peers. The EUR/USD currency pair is trading at 1.0621, down 0.11% or $0.0013. The GBP/USD pair is down 0.57% at 1.2424, or $0.0073. A broad measure of the strength of the US dollar is the US dollar index. It is currently at 101.00, up 0.12% or 0.12. With the US dollar index (DXY) tracking near its 52-week high of 101.48, it is evident that currency pairs with the USD are going to feel the effects.

What Factors Are Going to Impact the Strength of the USD This Week?

For the most part, the week is going to be subject to less volatility owing to the upcoming holidays. However, several important data announcements will be released this week, including the following:

• US Durable Goods Data
• EU Purchasing Manager Index (PMI) Data
• The United States Federal Open Market Committee (FOMC) Minutes
• The United Kingdom Autumn Statement by Chancellor of the Exchequer Philip Hammond

Currency trading volume is going to taper off significantly by the end of Wednesday, with US markets closed for the long weekend. The USD has been surging ahead in recent weeks, owing to the election of Donald Trump, and strong economic data releases from the US economy. We are seeing rising inflation expectations and nominal yields are also rising. For day traders seeking to profit off the dollar’s rally, short-term put options may come into play as profit-taking kicks in.

Important Economic Announcements vis-a-vis EUR/USD pair

Nonetheless, the overall trend with the USD is bullish. Further upside momentum is likely with a strong USD as evidenced by the DXY. The most important determinant of EUR/USD sentiment will be the EU PMI data coming in. This will provide an indication of ‘Market Mood’ since the election of Donald Trump.

With respect to the United Kingdom, an important economic data release will be made with the Autumn Statement. This will provide the clearest possible indication of the type of Brexit that the UK intends to put into play. With the Fed FOMC expected to meet on Wednesday, 14 December, the FOMC minutes will be an important barometer of current sentiment.

Strong EUR Selling of Late Boosts USD

Over the past couple of weeks, markets have been subject to strong EUR sales. This has been brought about by several major concerns in the EU. Issues like the Greek debt crisis, the Italian constitutional referendum, the Austrian election and the upcoming French presidential elections are all weighing on the EUR. There are also deep concerns related to the nature of Britain’s exit from the EU.

This week, EUR sales are likely to calm as US markets prepare for Thanksgiving. There is no doubt that the EUR has been marching inexorably towards parity with the USD, and this movement will continue through the end of November and December. The inauguration of President Donald Trump, coupled with Fed rate hikes will almost certainly strengthen the USD and weaken the EUR/USD currency pair. The EUR/USD pair has been kept in quasi-equilibrium mode owing to the surpluses in the Eurozone. That this is likely to break to the downside comes as no surprise given the strength of the greenback.

The surplus in the Eurozone is likely to diminish markedly in 2017 with the ‘all-business’ approach of a Trump administration. Capital outflows from Europe and into the US will certainly impact on the strength of the EUR/USD pair. Further, pressures are being brought to bear on the European economy as a result of the Brexit. Europe will no longer be as attractive, or as lucrative a destination for investment purposes with all the uncertainty surrounding a Brexit. According to leading analysts from Citi, the short and sweet of it is that traders will do well to place put options on the EUR/USD pair and go long on the greenback.