EUR/USD Forecast: USD to keep suffering from trade war distress
|- US hit by uncertainty surrounding US foreign trade policy, soft employment data.
- EUR/USD could advance this next week, but uncertainty leaves it directionless in the wider perspective.
So, the trade war began. Starting at 00:01 GMT this Friday, the US has imposed tariffs on Chinese goods worth $34B, with Beijing reacting imposing an equal measure, with tariffs of 25% on a $34 billion list of US goods that includes soybeans, pork and electric vehicles. China accused the US of triggering the “largest-scale trade war,” while Trump upped the bet, menacing to target the total amount of US imports from China last year. There was no immediate reaction to the headlines, mostly priced in ahead of the official launch, but for sure, the greenback suffered from the headlines, ending the week lower against all of its major rivals.
Adding fuel to the fire, the US Nonfarm Payroll report disappointed, as despite the US created in June 213,000 new jobs, beating forecasts of a 195,000 increase, the unemployment rate unexpectedly increased to 4.0%, while wages' growth was overly soft: average hourly earnings rose by 0.2% during the month, missing expectations of a 0.3% rise while annual earnings growth at 2.7%, missing expectations of 2.8%. May headline was upwardly revised to 244K from 223K, but the limited wage inflation pressures weighed more.
Also this week, the FOMC released the Minutes of their latest meeting, which were less hawkish than expected, although far from dovish. Policymakers reaffirmed their commitment to raise rates gradually, as " the economy already very strong and inflation expected to run at 2 percent on a sustained basis." Policymakers also acknowledged that the negative risks to the economy from US trade policy have intensified, but despite less hawkish than anticipated, the dollar found some love after the release.
The EUR, on the other hand, found additional support on a report indicating that ECB's policymakers believe that rising rates by the end of 2019 would be "too late."
The EUR/USD peaked at 1.1767 this Friday, and holds on to weekly gains ahead of the close, nearing pre-central banks decisions' levels. Backing the common currency were the final versions of June Markit PMI, as economic growth picked up in the Union by the end of the second quarter, after being slowing since the year started. Retail Sales in the EU disappointed by holding flat in May, but German industrial activity also gave signs of improvement. In the US growth in the services sector was also better-than-expected, but the disappointing employment figures and Fed's concerns over the risk that the trade war poses for economic growth offset any other positive headline.
Inflation will take center stage next week, with fresh figures for Germany and the US, but no first-tier event scheduled. The trade war will be the dominant market motor.
EUR/USD technical outlook
The EUR/USD pair is above the 23.6% retracement of the April/May weekly decline at 1.1720, after being below it for the previous two weeks, and while holding on to gains, a bullish case is not yet firm enough, given that for that scenario, the pair would need to extend gains beyond the 1.1850 region, where it topped post ECB an Fed's monetary policy decisions and where the pair also has the 38.2% retracement of the mentioned decline. The area happens to be the neckline of a double bottom figure of around 350 pips' height.
In the weekly chart, the pair is still developing far below a bearish 20 SMA, although the 100 SMA is advancing above the 200 SMA below the current level, while technical indicators are slowly picking up within negative territory, somehow suggesting that the pair may have found a bottom. In the daily chart, the pair managed these last few days to extend gains beyond its 20 DMA, which anyway maintains a mild bearish slope, and continues developing well below the larger ones, although technical indicators maintain strong bullish slopes at their highest in over two months, also supporting the case for further gains ahead. The 1.1780/90 region comes as an immediate resistance ahead of the mentioned 1.1850 price zone while beyond this last 1.1920 becomes a probable target. Supports these upcoming days come at 1.1720, 1.1660 and the 1.1600 price zone.
EUR/USD sentiment poll
This week, the FXStreet Forecast Poll presents a mixed stance for the upcoming week, but the dollar is still seen as the strongest advancing against all of its major rivals but the EUR, boosted by latest ECB's rumors, and the CAD, underpinned by soaring oil prices.
In the particular case of the EUR/USD pair, bulls are a majority weekly basis but decreased sharply in the monthly and quarterly outlooks. In the three time-frames under study the average target prices converge in the 1.17 region, somehow indicating growing uncertainty. The number of bulls and bears are practically equal in the monthly view, another sign of the absence of definitions. The most interesting change, however, comes from the overview chart, with moving averages turning higher in the weekly and monthly views, and losing downward strength in the 3-month perspective, somehow anticipating that the greenback is close to an interim bottom.
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