It is important to understand the currency markets forecast for the first half of 2016.
At the end of quarter for in 2015, there was renewed downside pressure for EUR/USD as a result of the easing program from the European Central Bank. The ECB was perhaps the largest factor driving this currency pair. As soon as the bank announced a possible rate cut, the EUR/USD began dropping and moved seven cents in six weeks. When the bank failed to meet market expectations, the pair moved up.
EUR/USD was perhaps one of the most interesting trading pairs for the last half of 2015. FxPro Forex broker in their economic data report suggest that there is a considerable amount of psychological conditioning that market participants have to go through as a result of what the central banks do. The market is skeptical about what the policymakers will do when it comes to changes in the central banks, and as such, the market will change due to nervousness.
For the start of 2016, the central bank policies will be the backbone for forecasting the EUR/USD movement in the market. There are March policy meetings and the market will be fixated on what ECB as well as the federal governments do. Traders should be focused on the US Dollar side due to data coming in regarding inflation.
If there is any indication that there will be an uptick in the inflation, the market is likely going to see a rate hike as well. There are two rate hikes expected out of the fence, though their dot plot indicates that there may be four.
As for the euro side of the equation, is critical to understand the reasoning behind European Central Bank cutting its deposit rate at the beginning of December 2015, what they did worked against what the market thought was going to be sufficient changes to the QE program. As such, the bank identified that there was asked inflation economic data that were hitting four-year highs.
Financial conditions are always going to play a vital role in understanding the market and there are various statistics that going to play for the EUR/USD pair. Throughout the end of 2015 and into 2016, the pair continues to trade at about -5% below the NEER’s pair from the bank.
Through the next quarter, at least, there will be a sideways trading market for the EUR/USD as a result of market counterbalancing that stems from looking at US economic data performance and determining how the rate hikes are going to have an impact based upon the European financial conditions. They will neutralize in some capacity, though one will ultimately be higher than the other.