The Euro had a good performance last year and managed to post solid gains, especially against the US dollar.
The bullish trend continues at the present time, as the block currency is favoured by good economic developments and increasing prospects of an ECB monetary policy normalization.
If we refer to the EURUSD, dollar weakness has fostered the continuation of the bullish movement, and as a whole it could contribute to an increase in forex trading activity.
Inflation and Employment to be centre stage in 2018 as well
Talking about the Eurozone, inflation had been picking up during 2017 and it is expected to continue to advance in 2018, towards the ECB goal of below but close to 2%. Unemployment is on a descending path, showing that there is a real economic expansion. With that being the case, the ECB is expected to start considering a shift in monetary policy, which is why investors have been bullish on Euro for the last year.
However, officials from the ECB could keep a cautious tone regarding the subject to avoid hurting the already fragile economic development. That could add downside pressure on the Euro, but as long as the economic indicators perform better than expected, there is room for additional gains on the upside.
Now that we’ve talked about the euro, let’s move to the US dollar. Inflation is still close to the Fed target and unemployment rate is close to record lows. The recent vote for the tax cuts that President Trump promised during his campaign, is expected to continue to boost the US economy in the year ahead.
However, the market is currently pricing in 3 rate hikes from the Fed in 2018. There are concerns that it could not be enough, which is why there is pressure on the US dollar at the present time. As long as the central bank doesn’t shift its view, the dollar could continue to be under pressure, contributing to the increase of forex trading activity.
The solid gain we saw on the pair last year raised confidence among investors and there are expectations for a continuation higher.
A busy year lies ahead, with the Brexit negotiations on the centre stage. In March 2019, the UK will formally leave the EU even ifa deal has not been reached. There is still a lot of work to do and time is running out, putting pressure on politicians.