Dollar Strength Kills the Euro

Dollar Strength Kills the Euro

The US Central Bank confirmed last week that they will hike interest rates in December and 3 more hikes in 2019 on the basis that the US economy stays on track.

The ECB (European Central Bank) does not look like increasing interest rates anytime soon so we are looking at a situation soon where the US will be over 3% and the Euro zone will be flat at 0%.

One of the main drivers for currency fluctuations is the interest rates in those countries. High interest rates means demand for a currency which drives its price up while low interest rates means low demand which drives the price down.

This is the big picture scenario. When you have a pair like the EURUSD it is expected to fall as traders sell euro and buy the dollar. However, if it was as simple as that trading would be easy.

We also need to consider ongoing economic and political events and how these events will impact currency prices, some in the short term and some in the longer term.

On the Economic News front this week keep an eye on the US CPI (Consumer Price Index) which comes out on Wednesday. This is the monthly percentage increase/decrease in goods and services in the US.

This is in essence inflation. If too high Central Banks lower interest rates and if too low they will increase them. We look at a few months of this data to establish if it will have any impact on the US Central Banks current policy.

On Friday, the head of the European Central bank, Mario Draghi has a press conference and traders will be listening closely to see if he gives any indications of the ECB’s policy on interest rates going forward.

By combining charting with news you will give yourself a better perspective on what trades to take and on what instruments. Remember the name of the game is timing, get your timing right and you will catch the big moves and the big profits.

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