EUR-USD: What to Expect Before New Years

It is the first trading day of what is typically the least liquid period in the financial markets. As a result, there was no consistent trading pattern in the US dollar today. The greenback weakened against the Euro but gained strength against the British pound and Japanese Yen. We still believe that the US dollar has hit a top and could be at the cusp of a major reversal. The EUR/USD’s resilience to the US stock market sell-off indicates that we are finally seeing the weak outlook for the US economy reflected in the weakness of the US dollar. In 2009, the greenback may no longer be the market’s safe haven currency of choice as yields on Treasury bills sit at zero to negative levels.

How the EUR/USD Could Trade Over the Next 2 Weeks

Christmas and New Years week is a time when traders are more focused on seeing family than making profits. It is probably truer this year than most because of the sharp volatility in the financial markets and the deep losses endured by most investors. Taking a look back at how the EUR/USD traded between Christmas and New Yearsin 2003 and 2007, there was only one year where we saw a breakout move in the EUR/USD and that was in 2007. Besides that, we do not typically see a more than 200 pip range in the currency pair during the holidays. A barrage of weak US economic data and speculation of more aggressive interest rate cuts by the Federal Reserve drove the longest decline in the dollar since October 2006. This time around, bad US economic news has pretty much been baked into the markets which means that any of the reports being released over the next 2 weeks should not deliver much of a surprise.

Final GDP, Housing Market Data

With that in mind, we have the final figures for third quarter GDP, the University of Michigan consumer confidence report, new and existing home sales due for release on Tuesday. In 2007, the sharp sell-off in the US dollar was triggered by new home sales report, which dropped to a 12 month low. Although the housing market data should continue to disappoint, the market already expects this. Instead, the only potentially market moving number is the final figures for GDP. If there is a sharp revision, we could see a reaction in the EUR/USD but it is important to mention that even though retail sales were weak, the trade deficit narrowed in the third quarter. The odds for a major revision are low. Meanwhile oil prices continue to fall, which has driven the average cost for gallon of gasoline nationwide down to $1.65, close to 60 percent off its high. Airlines around the world are beginning to cut their fuel surcharges which are an example of the stimulative effect of lower gas prices.

About Kathy Lien 236 Articles

Kathy Lien is an Internationally Published Author and Chief Strategist of, one of the world’s most popular online websites for currency research. Her trading books include the highly acclaimed, Day Trading the Currency Market: Technical and Fundamental Strategies to Profit form Market Swings (2005, Wiley); High Probability Trading Setups for the Currency Market E-Book (2006, Investopedia); and Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game (2007, Wiley). As Chief Currency Strategist at FXCM, Kathy is responsible for providing research and analysis for DailyFX, the research arm of FXCM. She also co-edits the BK Forex Advisor, an Premium Service with Boris Schlossberg – one of the few investment advisory letters focusing strictly on the 2 Trillion/day FX market.

Kathy is also one of the authors of Investopedia’s Forex Education section and has written for, the Asia Times Online, Stocks & Commodities Magazine, MarketWatch, ActiveTrader Magazine, Currency Trader, Futures Magazine and SFO. She is frequently quoted by Bloomberg, Reuters, the Wall street Journal, and the International Herald Tribune and has appeared on CNN, CNBC, CBS and Bloomberg Radio. She has also hosted trader chats on EliteTrader, eSignal and FXStreet, sharing her expertise in both technical and fundamental analysis.

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