2018 started on the same note as 2017 ended: with Euro holding elevated levels and the dollar looking for direction.
Despite this being a shorter week than usual (FX markets were closed on Monday) and volatility has relatively low levels, some notable events are worth mentioning: the FOMC minutes and the NFP.
The Minutes brought nothing new, in the sense that the Fed’s hawkishness didn’t change. However, the balance on the Fed’s board will change once again this year as starting with January, two doves leave, and two hawks come in, both with voting rights.
From that point of view, the dollar should be bid on any dip. However, it isn’t.
The EURUSD pair sits comfortably above the 1.20 level, and the GBPUSD marches higher as well. This is unlikely to change until the NFP comes later this week.
On Friday the NFP data will hit the wires, and everyone expects a substantial number. And, probably, the U.S. economy won’t disappoint.
But, it doesn’t mean the dollar will rally. Even if it would, traders will use the dip only to establish new positions on the short side of it.
What matters the most in Forex trading or investing is how to deal with expectations. A solid U.S. economic performance is already in the cards, so any positive surprise won’t really be a surprise.
Traders/investors seem to be more preoccupied with the tax reform implications in the long run. One trillion dollars added to the already excessive debt may mean the start of a massive dollar decline.
The year barely started, and the financial community is full of people forecasting various levels for 2018.
To join the game, my take is that the Euro will be the star of the year, with EURUSD seeing much higher levels than the current 1.20, and EURJPY marching towards 150. And, if I were to pick one between the two, I would choose the EURJPY pair as the one that will travel faster and further. Time will tell what the market will do.
Also published on Medium.