EUR/USD Forecast: uncertainty reigns, but sentiment keeps favoring the USD
|The EUR/USD pair managed to extend its advance to a fresh sixth week high, and settled marginally higher for a fifth consecutive week, around 1.0660. Dollar's weakness, however, has begun to fade during these past days, particularly after FED's Yellen said that the US Central Bank aims to take rates up to 3.0% by 2019, somehow anticipating a few rate hikes a year for the next three. Political woes took center stage, after UK's PM Theresa May confirmed a "hard-Brexit" and Donald Trump becomes the US 45th US President.
This past week, went with the ECB leaving its monetary policy unchanged, as largely expected, but Mario Draghi being far more dovish than expected, downplaying the uptick in EU inflation from past December, and reaffirming that QE will persists as long as required, and could even be extended if needed.
US data was generally better-than-expected, indicating strong growth continues in the world's largest economy. Overall, the greenback's decline seen over the past few weeks is more related to uncertainty coming from upcoming Trump's administration, than because of a weak macroeconomic background.
That's probably one of the reasons why the EUR/USD rally has been quite shallow, measly 300 pips following and around 970 pips decline. The pair has met selling interest this past week around 1.0710, which stands for the 38.2% retracement of the November/January decline, triggered by Trump's victory.
Technically, the weekly chart shows that indicators have extended their recoveries from oversold territory, maintaining their bullish slopes but well below their mid-lines, whilst the 20 SMA heads sharply lower above the current level, converging with the 50% retracement of the mentioned decline at 1.0820, a nice bullish target-top for the ongoing upward correction.
Daily basis, the price stabilized above a bullish 20 DMA, but the 100 DMA caps around 1.0770, whilst the Momentum indicator retreats from overbought readings, and the RSI holds flat around 56, somehow indicating decreasing buying interest. Still, with the pair above 1.0565, the 23.6% retracement of the mentioned slide, the downside seems well limited. A break below this last should favor a bearish extension, with 1.0490 and 1.0445 as the next probable bearish targets for these upcoming days.
Market's sentiment towards the common currency remains strongly bearish according to FXStreet.com Forecast Poll, given that bears account for more than 60% in all the analyzed time frames. The overall sentiment is that failure to advance beyond 1.0700, summed with a dovish ECB, has denied chances of further EUR's gains. The pair is seen, however, modestly lower for the next month targeting the 1.0545 level, while in a three-month view, the pair is expected to retest the multi-year low posted early June.
Theresa May's Brexit strategy has hardly affected market's view on the Pound, with limited bullish hopes for the upcoming week -as 36% of the polled investors are long, against 43% short- that increase when it comes to the 1-month analysis. In the longer term, the pair is seen heading towards 1.2000, with little definitions among investors, not willing to risk an outlook ahead of Brexit.
Chances for a USD/JPY recovery towards 120.00 have increased after the pair bottomed around 112.50, although uncertainty leads this month, as the number of bears match the number of bulls, leaving a neutral bias. Nevertheless, bulls surge to 55% in the three-month view, whilst bears are reduced to just 15%.
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