Euro zone inflation increases 1.1% y-o-y in December

Almost all the social media forums related to financial markets were buzzing about the probability of Euro hitting parity with the US dollar. In fact, several traders anticipated the exchange rate of the Euro to equal the US dollar in the last week of December 2016.

However, it did not happen. Still, many speculators have not given their hope and are expecting the Euro to decline soon. The most recent economic data suggest that the EUR/USD will not hit parity as of now.

On the contrary, a bullish reversal is expected in the EUR/USD pair due to the reasons mentioned below.

The IHS Markit reported an increase in the Spanish manufacturing PMI (Purchase Manager’s Index) reading to 55.3 in January, compared with 54.5 in the previous month. Analysts were expecting a PMI reading of 54.6. The leading indicator’s reading reflects a rise in optimism among managers in the manufacturing sector. Likewise, the Italian manufacturing PMI increased to 53.2 in January, from 52.2 in the earlier month. The market was expecting a reading of 52.3.

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On Wednesday, the Eurostat (statistical office of the EU) agency reported another upbeat data about the Euro zone. According to a flash estimate, the inflation rate increased 1.1% y-o-y in December 2016. Energy and services were primarily responsible for the increase in the inflation rate. It can be noted that during the previous month, the consumer prices increased 0.6% y-o-y.

The Greenback, on the other hand, is expected to weaken in the days ahead, according to Boris Schlossberg, an analyst at New York-based BK Asset Management. The argument made by Schlossberg is that the market has huge expectations from Donald Trump and even the slightest disappointment would trigger a big selloff. Even if Trump performs well, still, it may take months before the economic data begins to reflect his policies. Until then, the market may see wild swings. Considering the risk, investors will not be interested in adding further positions in the US dollar. So, based on the above arguments we forecast an uptrend in the EUR/USD pair in the near-term.

The EUR/USD chart shows the formation of a bullish “hammer” candle pattern (indicated by an aqua colored circle). The stochastic oscillator is also emerging out of the bearish zone. Thus, we can anticipate the EUR/USD to ascend soon.

A currency trader can take a long position in the EUR/USD pair near 1.0480. For the suggested trade, a stop loss order can be placed below 1.0420. The long position can be diluted near the major resistance level of 1.0660.

A binary trader can trade a call option (high or above) to gain from the forecasted rise of the EUR/USD pair. An investment can be made as long as the EUR/USD pair trades near1.0480. The contract should remain active for a period of one week.

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