Dollar rallies on the expectation of 3 rate hikes in 2017.  EUR/USD broke 1.05 key support and hit 13-year low.  Is it a good time to Sell EUR/USD now?

Fed gave the dollar bull an advanced Christmas present.  Fed Chair Janet Yellen is expecting an over-heating economy in 2017.  She raised the expectation of 2 rate hikes to 3 and she called it a “modest adjustment”.  We would interpret that, as “there could be more than 3 rate hikes if the need arises”.  This is definitely more hawkish than what most people have anticipated, or rather, this is what they are waiting for to continue buying the dollar.  EUR/USD dropped to 13-year low.  It went below 1.04 at one point in time before profit taking kicked in to bring it back above 1.04.  USD/JPY uptrend is still intact, setting a 10-month high at 118.65 after the Fed meeting.

The last Fed meeting for 2016 is over and what lies ahead is the festive season of Christmas and New Year.  Besides thinking of Christmas presents to get for their loved ones, investors would probably be looking for answers to some of the burning questions below.

  1. “I am Short on EUR/USD, should I take profit now or hold on to it?”
  2. “Should I Long USD/JPY now? What if the dollar rally continues during the holiday season?”
  3. “Should I wait for profit taking before buying dollar?”
  4. “Will there be a major pull-back before the festive season?”
  5. “Will the dollar continue to rally at the start of 2017?”

If you have one or more of the above questions in your head now, probably you will find the final paragraph useful.

Profit taking is common towards the end of the year, as major players around the world are winding down before the festive season.  Traditionally, the liquidity in the Forex market is low during the Christmas and New Year period.  In other words, a typical contract size could possibly cause a significant move in the market during this period.  We are expecting a less significant pull back from profit taking, because market may be waiting for reason(s) to convince them the dollar bull is running out of steam.  President-Elect Donald Trump would be sworn in on 20 January, the dollar is likely to recover from any profit taking that has taken place prior.

“No one can predict the market accurately, but we can prepare for it.”


Our Picks

EUR/USD – Possible Short.  Profit taking may take EUR/USD higher, giving us a possible entry to go Short around 1.05


USD/JPY – Possible Long.  Profit taking may take USD/JPY lower.  If BOJ maintains status quo, USD/JPY may head towards 116, giving us a possible entry to go Long around 116.


GBP/AUD – Possible Short.  GBP/AUD is near resistance of 1.7150.  Possible to consider going Short, once price closes below 1.7090.



Top News This Week (GMT+8 time zone)

Japan: BOJ Interest Rate.  Tuesday 20th December, 11am.

We expect figures to remain unchanged at -0.1% (previous figure was -0.1%).

New Zealand: GDP q/q.  Thursday 22nd December, 5.45am.

We expect figures to come in at 0.9% (previous figure was 0.9%).

US: Final GDP q/q.  Thursday 22nd December, 9.30pm.

We expect figures to come in at 3.2% (previous figure was 3.2%).



Fullerton Markets Research Team

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