The Euro jumped to a three-year high on Friday following the preliminary agreement reached by Angela Merkel led political party with another party to form a coalition government that has stalled the administration for months.
The Euro rose against most of the G10 currencies after the report was made public, breaking the 1.2116 resistance level for the first time in 3 years.
This, coupled with the report that the European Central Bank is considering adjusting its monetary policy to reflect strong economic growth in the region improved the Euro currency outlook.
As previously projected, a sustained break of key resistance level, 1.2116, will likely open up 1.2500 resistance level in 2018. However, the strong U.S. fundamentals and the possibility of the Federal Reserve raising rates three times in 2018 could bolster U.S dollar attractiveness and reinforce sellers’ interest enough to contain the pair below the descending channel as shown above.
We believed the U.S. dollar is undervalued due to growing uncertainties, especially with the tax cut impacting the economy differently. For instance, the decision of the Wal-Mart management to raise workers wages following the tax cut is likely to compel other businesses to do the same, therefore, leading to an increase in wage growth that has stalled inflation rate and impeded household spending post-recession.
Again, the tax cut is likely to impact wage growth faster than previously anticipated while at the same time enhancing economic productivity.