Why Did The EUR/USD Strengthen Recently?

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The recent performance of the EUR/USD currency pair can best be described as strongly bearish. The above graphic illustrates the dramatic drops in the EUR/USD pair. The pair sharply depreciated after the US presidential election, which ties in with the strong appreciation of the USD. The dollar has been able to rally towards 14-year highs, thereby undercutting the performance of the EUR, GBP and JPY in the process. This is evident in the uninterrupted downward trend throughout November, coupled with equally bearish movements throughout December. A consolidation of the EUR/USD pair has been evident in recent weeks, but the overall trend is negative. This is validated by the 50-day moving average and the 200-day moving average – both of which are above the current rate.

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The EUR was recently trading weaker against the USD, moving towards the 1.0480 level, but it reversed. The reason for this reversal was the release of the US ADP report. The ADP National Employment Report revealed an increase of 153,000 nonfarm private-sector jobs. The US economy added 17,000 fewer jobs than analysts forecast for December 2016. Employment was up 18,000 in small businesses, 71,000 in midsize businesses and 63,000 in large businesses.

The service-providing sectors showed gains of 169,000 new jobs while the goods producing sector lost 16,000 workers. These were in manufacturing, natural resources & mining, and construction. The above graphic represents the seesaw nature of nonfarm private employment figures over the past year. What is especially important for the EUR/USD pair is the forecast versus the actual performance data. Analysts were expecting the US economy to add 170,000 new jobs. Since the US economy didn’t perform as expected, casualty number one was the USD. The EUR/USD pair rallied accordingly.

Why does the DXY (US Dollar Index) affect the EUR/USD Pair?

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What Should Traders Look for with the EUR/USD Pair?

As always, major economic announcements will impact the EUR/USD currency pair. These include things like interest rates, employment numbers, GDP, trade balance, retail sales, sentiment indicators (University of Michigan Consumer Sentiment Indicator), fundamental indicators (geopolitical events such as riots in Greece or Cyprus, credit upgrades or downgrades), and the like. The most important factors are naturally the decisions taken by the Federal Reserve Bank vis-à-vis interest rates and the European Central Bank. As it stands, the Fed is set to increase interest rates at least 3 times in 2017. Every time a Fed rate hike is implemented, we can expect the USD to get a bump. This will naturally weaken the EUR/USD pair, ceteris paribus.

Early every month, the European Central Bank releases what is known as the minimum bid rate. This typically takes place within the first week, or second week of the month. The minimum bid rate is usually priced into markets well ahead of time. ECB President Mario Draghi hosts a press conference after the Minutes of the Meeting. He will give his explanation of monetary policy decisions, and field questions. Rate decisions in the Eurozone are determined by 6 members of the Executive Board of the ECB.

As a binary options trader, you’ll want to keep a close watch on what Mario Draghi says about ECB policy. We know that quantitative easing to the tune of €80 billion per month is continuing, and that it will decrease to €60 billion by April. Any changes to QE policy will have an immediate effect on the EUR. As a binary options trader, it is best to strike while the iron is hot. As soon as employment numbers from the US, or the Eurozone are released, they should be evaluated against the forecast figures. In this case, the actual numbers underperformed expectations and the EUR rallied accordingly. Therefore, call options are a safe bet.