EUR/USD Forecast: ECB down, Fed to go
|- Without getting into details, the ECB anticipated more stimulus coming in the EU.
- The US Federal Reserve may cut rates by 0.25% but the market has already priced it in.
- EUR/USD heading toward the critical 1.1000 figure, led by central banks.
The European Central Bank has sent the shared currency nose-diving to a fresh two-year low against the greenback this Thursday, as policymakers confirmed that more easing is coming. Despite head’s Draghi was less dovish than anticipated, triggering a short-lived bounce in EUR/USD, the market finally realized that the Union is in trouble. The statement said that rates will remain at current or lower levels at least through the first half of 2020, adding that the monetary policy will remain “highly accommodative” for a “prolonged period of time,” , as inflation rates, both realized and projected, have been persistently below the central banks’ target. The ECB provided no details on how they will provide more stimulus to the economy, but cooled down hopes of a rate cut a bit, as Draghi said they didn’t discuss cutting rates this time.
European data released ahead of the event backed Draghi & Co.’s decision, as manufacturing activity in Germany fell to the worst level in more than seven years this July, according to Markit. Also, the IFO index showed that German Business Sentiment fell in the mentioned period for the tenth time in the last eleven months.
The US released the advanced estimate of Q2 GDP this Friday, which came in at 2.1%, showing that economic growth decelerated from the previous quarter, although by less than anticipated. According to the official release, consumer expenditures were up by 4.3%, while business investment decreased by 5.5%, with consumption propelling growth and diluting concerns about a recession.
It’s all about growth and central banks
This upcoming week the US Federal Reserve is taking center stage. It has been discussed whether the US Central Bank will proceed with just a “preventive” 25 bps cut or if policymakers would take a more aggressive approach. With the latest data, the softer stance has more chances, giving that GBP data confirmed that the US economy is experiencing the longest expansion on record. For sure, the external factors that triggered the dovish stance of central banks persist, but for now, seems the US economy is baring quite well despite trade tensions and slowing global economic growth.
Ahead of the Fed’s meeting, Germany will release its preliminary estimates of July inflation, while the EU will unveil the preliminary estimate of Q2 GDP, this last, seen up by 0.2% vs. the previous 0.4%. By the end of the week, the US will release the official ISM Manufacturing PMI expected to have expanded in July to 52.0 vs. the previous 51.7.
EUR/USD technical outlook
The EUR/USD pair is trading at around 1.1130 down roughly 100 pips this week, and not far above the 1.1101 two-year low set post-ECB. The pair is at the lower end of this year range and poised to extend its slump according to long-term technical readings, as, in the weekly chart, it extended its decline below all of its moving averages, although the medias continue lacking directional strength. Technical indicators remain within negative levels, the Momentum without clear directional strength but the RSI gaining downward traction at around 42.
Daily basis, the bearish potential is clearer, as, after setting the mentioned bottom, the pair corrected up to the 23.6% retracement of its latest daily decline, where strong selling interest rejected bulls. The 20 DMA is heading sharply lower above the current level and crossed below the 100 SMA, while the RSI kept grinding lower, now at 35. The Momentum indicator lags but stands within negative levels.
Below the 1.1100 figure, there’s little in the way toward the 1.1020/40 price zone and beyond, although the 1.1000 figure won’t be easy to break on a first attempt, but rather trigger a pullback if reached. The pair has now resistance in the 1.1170/80 price zone, followed by the 1.1250 price zone, with gains beyond this last unlikely if the Fed cuts rates by the expected.025%.
EUR/USD sentiment poll
The FXStreet Forecast Poll offers a mixed picture, as sentiment toward the EUR/USD pair is bearish for the upcoming week, but bullish in the longer-term perspectives. An educated guess would be that market’s participants still can’t see the pair losing the 1.1000 figure. Despite sentiment shifting to bullish, the pair is seen holding in the 1.1200/40 region, which means that the same speculative interest doesn’t expect much EUR strength either.
Weekly basis, and according to the Overview chart, most possible targets accumulate around/below the current level. In the monthly view, however, the largest accumulation is in the 1.12/14 area, despite the moving average maintains its downward slope. Finally, in the quarterly view, is clear that the market didn’t make up its mind, as most experts polled see the pair hovering around the current level. Gains beyond 1.1600 are practically null in the upcoming months.
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