EURUSD Market Forecast For March- Range Bound

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EUR/USD Market Forecast For March- Range Bound

It’s no secret that the EUR/USD is range bound. Anyone can look at a chart and see that it has been trading sideways between 1.2200 and 1.2550 since the middle of January. What most people don’t know is what’s causing this trend in the face of mounting hawkish outlook for the FOMC. I mean, with the US economy expanding, tax reform boosting growth, inflation slowly increasing and the Fed set to raise rates the dollar should be shooting higher like a rocket, but it isn’t.

This is because of the ECB. Not because they are tightening, or even because they’ve indicated a need to tighten, but because the market thinks they will and sooner rather than later. Why, because of the US. It is a Catch-22 the market can’t get away from. The US is a leading economy, not in the sense of yay USA we’re number 1, but in the sense that when the US grows it leads the world in growth and when the US slows it leads the world into recession.

In this environment hawkish news for the US, bullish news for the market, signs of expansion within the economy, end up being a net positive for the rest of the world. Sure, it may lead the FOMC to raise rates but it will also lead the ECB and BOJ to raise rates too and that my friends is why the dollar is range bound. The dollar strengthens but then the euro strengthens right behind it, undermining any gains that may have been made. I would expect this to continue until there is a clearer signal from one of the central banks.

How Do You Trade A Range Bound EUR/USD?

So, how do trade this range bound EUR/USD? Very carefully but with patience profitably as well. The key s targeting support and resistance levels at the ranges boundaries and within the range itself. The boundaries can be traded in the expectation of reversal, targets within the range may be used for reversal or continuation to the next target.

The daily charts shows the range very clearly. The pair has just rejected the bottom of the range on news President Donald Trump was going to impose stiff tariffs on imported steel and aluminum. It is now moving up within the range with an expected target near 1.2550 over the next few weeks. The indicators are still a bit weak but consistent with a bounce at support and drift higher within the trading range. The risk is a possible resistance level at 1.2365 that may cap upward movement.

The hourly chart confirms upward movement from the 1.2180 support level but the move is losing steam. The MACD momentum indicators is showing a noticeable divergence from prices that may lead to an intraday correction. Until that happens, price action does look bullish and is supported by a trend following crossover in the stochastic. A move higher in prices would confirm the uptrend with a target near 1.2360 over the next few trading days. A move above 1.2360 would be bullish within the range with target near the top of the range.

Next week will be important for the pair. There is quite a bit of data from both regions with two major market moving events on the calendar. The first is the ECB meeting on Wednesday, the second is US non-farm payroll data on Friday. These will both move the EUR/USD, be ready for volatility, use your support and resistance targets for entries and exits, bot don’t expect the range to break until later in the month when the FOMC meets.

EUR/USD Forecast: March 2020

Needless to say, the financial markets are going to be difficult to predict the moves of over the next 30 days, as we have seen mass chaos introduced into the marketplace. Because of this, although technical analysis is my forte, I also have to keep in mind the fundamentals as they will more than likely become even more important this month than any other in recent memory.

When looking at the EUR/USD pair, we have seen a massive spike higher leading towards the “surprise rate cut” by the Federal Reserve which had already been priced into the Fed Funds rate futures. In other words, it was simply the Federal Reserve acquiescing to the markets again. With that in mind, it is important to watch that market and it is suggesting that we could get even lower rates. However, one would have to think that at the March 18 meeting another rate cut could be more of a question mark than anything else considering that they have already made this 50 basis point move. One thing that Forex traders tend to forget is that when you trade currency pair, you are trading relative strength or weakness. Fundamentals will drive where we go next.

The Euro is weak for a reason. Yes, there was a large interest rate differential between the two economies, but at this point part of the reason the Euro has rallied is simply because the Federal Reserve has more room to cut rates, thereby pushing its currency around. However, Europe has quite a few structural issues that continue to weigh upon it. Not the least of which would be the negative interest rates that are so prevalent over the continent, turning banks into financial bombs just waiting to explode. We obviously know about Deutsche Bank, but there are others out there as well.

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With all of that being said, and the fact that the European Central Bank will almost certainly have to do something, I am a bit skeptical about the Euro itself unless of course the Federal Reserve rescues it by cutting even further. This is always a possibility, but one has to think the bar is a little higher than once was. From a technical analysis standpoint, I believe that the 1.1250 level is the most important level on the chart right now, because if we break above there then it becomes more of a trend change to the upside. Otherwise, I think we are looking at a range between 1.10 and 1.1250 for a majority of the month.

EUR/USD Rate Susceptible to Range Bound Prices Ahead of ECB Meeting

EUR/USD Rate Talking Points

EUR/USD holds the monthly range ahead of the European Central Bank (ECB) interest rate decision, but the opening range for January raises the scope for a further decline in the exchange rate as the near-term correction fails to produce a test of the August high (1.1250).

EUR/USD Rate Susceptible to Range Bound Prices Ahead of ECB Meeting

EUR/USD bounces back after failing to clear the monthly low (1.1085) and the exchange rate may continue to consolidate over the coming days as the ECB is widely expected to retain the current policy at its first meeting for 2020.

The ECB may largely reiterate the statement from the previous rate decision as the Governing Council conducts a strategic review for the first time since 2003 , and President Christine Lagarde and Co. may merely attempt to buy time as the central bank expands its balance sheet by EUR 20B/month.

More of the same from the ECB may keep EUR/USD afloat as the central bank appears to be in no rush to push the main refinance rate, the benchmark for borrowing costs, into negative territory, and the Governing Council may continue to c all on European lawmakers to support the economy as officials argue that “governments with fiscal space should be ready to act in an effective and timely manner.”

However, the ECB may continue to endorse a dovish forward guidance as the Office of the US Trade Representative (USTR) insists that France’s Digital Services Tax is “unreasonable,” with the Trump administration looking to implement “additional duties of up to 100 percent on certain products of France.”

In turn, President Lagarde and Co. may emphasize that “the Governing Council continues to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner” as the central bank struggles to achieve its one and only mandate for price stability.

T he threat of a US-EU trade war may drag on the Euro as the ECB relies on non-standard measures to support the monetary union , and the opening range for 2020 raises the scope for a further decline in EUR/USD as the near-term correction in the exchange rate fails to produce a test of the August high (1.1250).

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EUR/USD Rate Daily Chart

  • The broader outlook for EUR/USD remains tilted to the downside as the exchange rate clears the May-low (1.1107) following the Federal Reserve rate cut in July, with Euro Dollar trading to a fresh yearly-low (1.0879) in October.
  • Keep in mind, the monthly opening range has been a key dynamic for EUR/USD in the fourth quarter of 2020 as the exchange rate carved a major low on October 1, with monthly high for November occurring during the first full week of the month, while the low for December happened on the first day of the month.
  • As a result, the opening range for 2020 casts a bearish outlook for EUR/USD as the exchange rate pulls back from the December high (1.1239), and the correction from the 2020 low (1.0879) may continue to unravel amid the failed attempt to test the August high (1.1250).
  • Nevertheless, failure to clear the monthly low (1.1085) may generate range bound conditions, but lack of momentum to hold above the 1.1100 (78.6% expansion) handle may open up the 1.1040 (61.8% expansion) region, with the next area of interest coming in around 1.0950 (100% expansion) to 1.0980 (78.6% retracement), which lines up with the November low (1.0981).
  • Will keep a close eye on the Relative Strength Index (RSI) as it snaps the upward trend from November after failing to push into overbought territory.
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