ECB’s monetary policy did not act as dovish as expected, buy EUR/USD?
The Dollar index dropped 0.45%, one of the biggest selloff since 13th December to 92.60. With no recovery in dollar last week, this suggested that market is expecting the currency to underperform in 2018.
- US dollar has dropped 8% in 2017 and is on track towards its first annual decline in five years. It has weakened even after U.S. tax reform as traders have not seen the regime to benefit the inflation growth.
- One key factor that would influence the dollar will be euro; Euro had subsequently scored annual gains vs all of its G-10 peers and is now up more than 13% YTD against the greenback, its biggest advance since 2003.
- We expect EUR/USD to have a choppy session in first month of 2018 as MiFID II rules to trim liquidity. Europe’s MiFID II rules come into effect on Jan. 3, and while some institutions have already adapted to the procedures, many are not yet fully familiar with the new processes and reporting requirements which suggested that trading may not get up to speed straight away.
- In Asia, yuan stabilization outlook likely to buoy the regional currencies’ value, and this could pressure dollar index to go lower.
Fullerton Markets Research Team
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