EUR/USD Forecast: bears get a reality check
|Having started the week with a soft tone, the EUR/USD pair is finishing it with modest gains and around the 1.8000 level. Earlier on the week, and following the strong US NFP report released last Friday, the greenback gained on "self-strength," while escalating tensions within North Korea and the US kept the high-yielding common currency under pressure. This Friday, however, US July inflation data brought a reality check particularly to those thinking the EUR/USD pair may have already topped for the year.
US CPI rose a seasonally adjusted 0.1% in July, according to official figures, and by 1.7% when compared to July 2016, missing market's expectations. The core figures, those excluding volatile food and energy prices, were also below market's forecasts. The news followed the release of the Producer price index released on Thursday, unexpectedly fell in the same month, recording their biggest drop in almost a year, down 0.1% on the month an up 1.9% YoY, below previous 2.0% and the expected 2.2%.
Such levels of inflation don't justify a Fed rate hike this year, with chances of a September move pretty much null, and down to 40% for December. If we add to the equation that the ECB is expected to announce tapering in September, there you have, a bullish EUR/USD. There's still a month to go for both central banks' meetings, so a lot of water can run under the bridge, but at this point, a sustainable dollar´s rally seems out of question.
From a technical point of view, the weekly chart shows that the pair keeps struggling around its 200 SMA, far above the shorter ones, and with technical indicators partially correcting extreme overbought readings, far from signaling an upcoming reversal. In the daily chart, the price held above a bullish 20 SMA, despite a couple of attempts to break lower, while the Momentum indicator heads south within positive territory, but the RSI is already regaining the upside, currently at 63, somehow indicating the bearish pressure has begun to ease.
The weekly low was set at 1.1688 the immediate support for the upcoming week, followed by 1.1610,July 26th daily low. Below this last the pair will be undoubtedly at risk of correcting further lower, with the 1.1460 region becoming a probable bearish target.
1.1830 is on the other hand, the immediate resistance ahead of 1.1909, the yearly high. An advance above this last should push the pair up to 1.2000, while sustained gains beyond this last should support a steeper advance up to the 1.2160 price zone.
Market remains short-term bearish in the USD according to the FXStreet Forecast Poll, seen falling this upcoming week against most of its major rivals, with commodity-related currencies as an exception, as both the CAD and the AUD are seen easing modestly, but anyway down against the greenback.
In the particular case of the EUR/USD pair, the pair is seen averaging 1.1829 with 62% of the polled experts going for an advance modestly down from previous' week outlook, when bulls were 73% and the average target was of 1.1873. In the three-month view, market's perspective remains quite steady, with the pair seen averaging 1.1629 and bears up to 59%. Bulls in this last time frame, have decreased from 26% to 18%, reflecting the ongoing idea that the Fed will hardly be able to provide a rate hike this year.
Bulls stand for the 54% in the weekly view for the GBP/USD pair, but those expecting a rally beyond 1.3000 are a clear minority. Heading into the end of the month and the quarter, and despite the Pound's latest setback, the average target is 1.29, somehow reinforcing the view of a longer-term weaker dollar.
The USD/JPY pair is seen extending its decline towards 108.00 an beyond next week, with a whopping 85% of bears targeting in average 108.43. Last week, market was going for a downward target of 109.96 with 78% betting for a decline. In the three-month view, bulls stand now at 67%, aiming for 111.35, this last nearly 50 pips lower than the long term average target for last week.
Bottom line, the sentiment poll indicates that is not time to buy back the greenback.
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