Euro Up on Stronger than Expected Industrial Production

As expected, the US Fed raised rates on Wednesday. However, the US dollar did not move up against its rivals. In fact, the Greenback fell against the Euro dollar. Analysts point out two reasons for that. Firstly, the market had already priced in the rate hike.

Secondly, the Fed cautioned that the inflation rate would reach the targeted 2% rate only in 2019.

Additionally, the facts presented below indicate the EUR/USD pair, which is currently trading at 1.1780, is poised for a continuation of the uptrend.

On Wednesday, the German Federal Statistical Office (Destatis) reported a 0.5% m-o-m increase in wholesale Price Index in November, versus analysts expectation of a 0.2% increase. Later that day, Eurostat, the statistical office of the European Union announced that the seasonally adjusted industrial production grew 0.2% m-o-m in October. In the earlier month, the industrial production had fallen 0.5% in the Euro area. Thus, economists did not expect a positive change in the October industrial production. On an annualized basis, the industrial production grew 3.7% y-o-y.

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While the market was waiting for the monetary policy statement from the US Fed, the Bureau of Labor Statistics reported an unimpressive inflation data for November. The US inflation rose 0.4% m-o-m in November, compared with a 0.1% rise in the earlier month. It was in line with analysts’ expectations. However, inflation rose mainly due to an increase in energy prices.

Excluding food and energy, core inflation increased only 0.1% m-o-m in November, against analysts expectation of a 0.2% increase. In the earlier month, the core inflation rate had increased 0.2%. The soft increase in inflation rate is a matter of concern to the market and also the Federal Reserve. The US inflation rate must pick up for the market to turn bullish on the US dollar.

Another reason for the US dollar to remain weak is the GDP growth projections for 2018 and 2019. The policy statement indicates the current GDP growth rate of 3% may not last and would likely remain in the range of 2% to 2.5% over the next two years. Thus, economic data presented above indicate the EUR/USD pair will remain bullish in the short term.

Technically, the EUR/USD pair has bounced off the support at 1.1740. The MACD indicator has crossed above the zero level and is rising. That indicates bullishness in the currency pair.

To benefit from the uptrend, I wish to go long in the EUR/USD pair near 1.1780, with a stop loss order below 1.1680. I will book my profit when the pair trades near 1.1920.

Additionally, I may also purchase a call option to gain from the probable uptrend in the currency pair. The option contract should be active for a week and the EUR/USD pair should be trading at about 1.1780 in the spot Forex market.

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