EUR/USD Forecast: Fed gave it, Fed took it away
|- The US Federal Reserve paved the way for a rate cut, the dollar plunged.
- EUR/USD advancing at a moderate pace, as the ECB is poised to act too.
The EUR/USD pair has recovered the 1.1300 level at the end of the week, remaining below the previous two weekly highs in the 1.1340 price zone. The dollar's weakness was directly connected to the US Federal Reserve, as the central bank paved the way for a rate cut. What kept the EUR/USD pair within familiar levels is the fact that the ECB is also planning more stimulus for the next months.
The American currency has opened the week on a strong note, as macroeconomic data released in the previous days suggested that the Fed could have some room to maneuver. On Wednesday, however, US Fed Chairman, Jerome Powell, confirmed what the market's suspected, that is, that rates will soon be cut. Policymakers dropped the reference to “patient” from their statement, and despite they remained optimistic about the economic outlook, they also expressed concerns about receding inflationary pressures.
The US Federal Reserve was the first central bank announcing tightening measures post-crisis, but in the current doom and gloom scenario, it has been anticipated but several of its major counterparts, including the BOC, the RBA, and the ECB. Nevertheless, the fact that central bankers are acting to prevent an economic collapse should maintain the scale leaned in favor of safe-haven assets.
US data released throughout the week failed to impress, adding to the sour tone of the greenback. Regional manufacturing indexes came in below expected, the Current Account deficit widened to $130.4B in Q1, and housing data, which resulted mixed. Things were no better in the EU, as the German ZEW Survey showed that Economic Sentiment collapsed in June, with the index at -21.1 for the country and at -20.2 for the whole Union. EU inflation rose by 1.2% YoY in May, with the core CPI at 0.8% in the same period.
Meanwhile, stocks soared on central banks' hints on more stimulus coming, but geopolitical tensions fed safe-haven assets. The US and China finally agreed to resume talks ahead of the G-20 meeting, but there're no hopes they could reach a trade agreement anytime soon. The US is fighting another battle with Iran, with reciprocal accusations and menaces of attacks underpinning oil prices.
US Treasury yields, on the other hand, collapsed to levels last seen in November 2016, as fears about a global economic downturn prevail, exacerbated by central bankers' pessimism.
On Friday, Markit released the preliminary June PMI, which came in better-than-anticipated in Germany but mixed for Europe. The EU Services PMI resulted at 53.4, beating the market's estimate of 52.9, although manufacturing output barely recovery, printing 47.8 vs. the 48.0 expected and the previous 47.7. US data was weaker-than-expected, as the manufacturing Index came in at 50.1 while the Services PMI resulted at 50.7, keeping the dollar under pressure.
The upcoming week's macroeconomic calendar will include a couple of first-tier figures such as US Durable Goods Orders for May, the final version of US Q1 GDP, and the EU preliminary June inflation. Any of those could introduce some temporal noise in the market, but none is enough to overshadow sentiment-related trading.
So far, much of the dollar's strength was related to Fed's hawkish stance. In this scenario, the greenback is set to remain weak, although the potential upward of the EUR is limited. As said, safe-haven will likely make the most out of this situation, with gold, the Yen and the Swiss Franc having more chances of extending gains.
EUR/USD technical outlook
The EUR/USD pair is closing the week with gains, although the weekly chart shows that it posted a lower low and a lower high, reflecting the limited interest on the EUR. As said, the pair stalled in around the 1.1340 price zone for a third consecutive week. The technical picture is neutral-to-bearish, as the 200 SMA remains directionless around the mentioned level, and far below the 100 SMA. The Momentum indicator is stuck around its 100 level, while the RSI seesaws below its 50 mark, lacking apparent directional strength.
In the daily chart, the pair is settling above the 20 and 100 DMA, with the shortest gaining bullish traction, but the 200 SMA still heading lower above the current level. Technical indicators have lost upward momentum, but remain within positive levels, somehow favoring additional gains for the upcoming days. The pair would need to run beyond 1.1350 to confirm further advances, with 1.1400 and 1.1460 as the next resistances and probable bullish targets. Supports came at 1.1295, 1.1245, and the 1.1180 region.
EUR/USD sentiment poll
The FXStreet Forecast Poll shows that the market is bullish in the short-term, although surprisingly bearish afterward. For the one-week perspective, the pair is seen averaging 1.1329, with just 33% of the polled experts looking for further advances. Those targeting neutral levels are a majority of 40%. In the one and three months views, bears are the most with 58% and 54% respectively, and the average target in both cases below the current level and above 1.1200.
The Overview chart offers an interesting perspective, in the longer timeframes under study, as most targets accumulate close to 1.1100 than to 1.1300, somehow suggesting that the current dollar's weakness is perceived as temporal.
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