The US dollar will likely face new challenges this year after a dismal 2017, when the currency suffered losses against all of its G10 peers. The EURUSD pair hit a four-month high of $1.2080 overnight and bounced a bit on Wednesday amid local profit taking. However, the general tone around USD remains bearish. A number of global central banks are expected to signal a shift in their monetary policy this year. This is negative for the greenback which enjoyed an advantage before, when the Fed was the only regulator taking steps in the process of monetary policy normalization.
The ECB member Ewald Nowotny said the central bank may end its stimulus program this year if the euro zone economy continues to grow strongly. As the prospects of policy tightening depend on the economic numbers, the markets will be closely watching the euro area macro data in the coming month. And if the figures stay decent, the euro will likely appreciate further in the longer term.
Considering the overall bullish outlook for EUR, which cemented as the pair broke above the 1.1960 and 1.2000 resistance levels, local retracements will further provide opportunities for opening new longs, especially on the back of market skepticism around further Trump’s legislative victories.
By Helen Rush
Senior Analyst at Capital Markets