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Will 2016 Be A Year Of Further Dollar Strength?

Dear Traders,

Happy New Year! We hope you have had a good start into 2016 and wish you all the best for the New Year and, of course, many profitable trades.

At every beginning of the year many market participants wonder what they can expect from the new year. There has already been speculation as to whether the dollar rally will last another year or not. After three straight years of gains the odds are in favor of the U.S. dollar, even though the Federal Reserves’s monetary tightening cycle could weigh on U.S. growth. It will therefore be a challenge for the Fed to raise interest rates to an appropriate level which allows responding to economic setbacks. We generally expect the greenback to strengthen in the coming months as the Fed is forecast to continue raising interest rates. But as we all know, appearances can be deceptive and traders should bear in mind that both major currency pairs could be bottoming out if Fed officials begin to backtrack their hawkish views.

What is important for this week?

There are plenty of important data releases this week, but since the market participation may be slow in the first weeks of January, the impact of economic data could be limited. The focus will be on Consumer Prices from the Eurozone, scheduled for release on Monday and Tuesday. Furthermore, the Fed will release the FOMC minutes from its December meeting on Wednesday. The minutes are unlikely to have a significant impact on the dollar as the FOMC voting membership rotates every year, which is why some central bankers who voted for a rate hike last year are no longer voting members this year. Moreover, all eyes will be on the U.S. Employment data on Friday. If payrolls growth exceeds 200k alongside a strong rise in average hourly earnings, the dollar could be poised for further gains.

Let’s take a brief look at the technical side:

EUR/USD

The euro traded consolidated in a 1.10-1.08 trading range. We will need to wait for breakouts of this range in order to see fresh momentum. In the near-term we expect the euro being capped from 1.0950 and 1.10. A sustained break above 1.10 could invigorate bullish momentum towards 1.1050 and 1.11. On the bottom side the 1.08-level will be key and it would require unambiguous positive U.S. data to push the pair through this support.

Chart_EUR_USD_4 Hours_snapshot04.01.16

GBP/USD

Based on the recent bear trend we see a next important support area at 1.4635 and further 1.4560. However, given the latest strong downward move, chances are that sterling shows some corrections in the short-term. Current resistances are seen at 1.4850 and 1.4950.

 

Chart_GBP_USD_Daily_snapshot04.01.16

Important data for today:

8:55 EUR German Manufacturing PMI

9:30 UK Manufacturing PMI

13:00 EUR German Consumer Price Index

15:00 USA ISM Manufacturing

(Timezone GMT)

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