One of the most difficult tasks that I have is a technical analyst is to predict the yearly movement of a Forex pair. This becomes even more difficult when we are talking about one that is dominated by high-frequency trading like the EUR/USD pair is. However, there are some general macro events or issues that can come into play, giving me some things to think about going into the New Year.
In 2019, I suspect that there are two major things that the markets are going to be focusing on. One of the most immediate issues is going to be what the Federal Reserve does going into the year. As I write this article, we are getting ready to have a December interest rate hike, something that is essentially “baked into the market.” The next question of course is what the statement sounds like, as Jerome Powell has suddenly sound a bit more relaxed about what was once thought an automatic three interest rate hikes for the year. That of course will influence US dollar strength, but now that things are starting to relax a bit, at least in the minds of the Federal Reserve, I think that they won’t raise as much as originally thought. This could be somewhat dollar negative, but don’t forget that the US dollar is considered to be a safety currency in times of uncertainty.
The other major issue that we are going to be focusing on is the European Union and the unrest that we are seeing in that part of the world, debt issues, and of course the Brexit. Beyond that, we have serious concerns about Deutsche Bank, which is a time bomb waiting to explode. I think because of this, the Euro will struggle a bit early in the year, but if the ECB can keep things afloat, we will probably bounce from these historically low prices.
As far as the technicals are concerned, we have recently bounced from the 61.8% Fibonacci retracement level. I suspect that the initial move above the 1.15 level could show that the Euro is trying to recover, and if it does we could see bullish pressure for the rest of the year. I anticipate that it is going to be very choppy and more importantly, sloppy trading at the beginning of the year. Eventually though, I believe that there is enough support below to keep this market afloat.