EUR/USD Forecast: yeah, the Fed will hike. So what?

• Fed's head, Jerome Powell, expected to pull the trigger this week.
• Political uncertainty will likely keep overshadowing macroeconomic data.

Trading was choppy around the EUR/USD pair this past week, heading into the weekly close modestly lower, although little changed for a second consecutive week right below the 1.2300 level. The common currency took a hit from continued jawboning from ECB's authorities, who repeated what Draghi said the previous week that inflation is still well below their target and that trimming QE is not yet above the table. The greenback edged higher as somehow, equities managed to recover some ground, despite fears about a trade war dominated headlines these last few days: news that US President Trump is planning to impose more tariffs on China, to cover a $100B deficit with the country hit the commodity sector, and saw equities tumbling at the beginning of the week.

Political scandals took center stage and overshadowed macroeconomic data, with an attempt of murder in the UK of a former Russian spy resulting in tensions between the two countries and the UK expelling Russian diplomats, and the Japanese PM Abe, his wife, and FM Taro Aso involved in the sale of state-land at ridiculously low prices and faking documents.

In the US, President Trump fired Secretary of State Rex Tillerson, amid strong divergences about the foreign policy, and replaced him with  CIA Director Mike Pompeo. Trump also decided to remove  McMaster as his national security adviser and is searching for a potential replacement. The political uncertainty surrounding  these decisions prevented the greenback from appreciating sharply, with gains in the American currency rather related to weakness in other currencies.

American data was mixed all through the week, with inflation growing steadily by 1.8% YoY in February, but Retail Sales falling for a second consecutive month. At the end of the week, a surprise surge in US Industrial Production, up 1.1% in February against an expected advance of 0.3%, and Consumer Sentiment reaching its highest in 14 years according to the Michigan index, which came in at 102.0, gave the dollar an additional boost.

Backing the case of EUR's weakness was the EU February CPI release, as inflation grew just by 1.1% YoY according to Eurostat, up for the month 0.2% as expected. With these levels of inflation, the ECB will hardly re-consider ending stimulus.

This upcoming week will be all about the Fed. The US Central Bank is having one of the so-called "live" monetary policy meetings, the first presided by Jerome Powell. His hawkish comments before the Parliament a couple of weeks ago, pushed investors into pricing in four rate hikes for this year, so a rate hike will hardly be a surprise. The question is, would that be enough to boost the greenback? It could, temporarily, but sustained dollar gains are still hidden behind political turmoil, and with the movement having been largely anticipated, a strong reaction has fewer chances of taking place. Trump anyway, will probably provide enough headlines to keep financial markets rolling.

For more detail on Fed's decision, you can go here: Fed Preview: Dollar-friendly dot-plot before a Powell punishment?

EUR/USD technical outlook

From a technical point of view, the pair seems to be developing within a small wedge in the weekly chart, usually understood as a "pause" within a trend, meaning that as long as the figure remains valid and the lower end holds, chances are of a bullish breakout and further gains ahead. A break below 1.2100/50 would invalid the figure. In the mentioned chart, the 20 SMA keeps heading north well below the current level and above the larger ones, while the Momentum indicator resumed its advance within positive territory as the RSI retreats from overbought readings, now around 61, in line with further gains ahead. The pair would need to settle weekly basis above the 1.2380 level for the figure to get confirmed.

In the daily chart, the bullish trend has clearly lost momentum, but a clear directional move has not yet been defined, as the pair keeps hovering around a directionless 20 SMA while developing far above bullish 100 and 200 SMAs. The Momentum presents a neutral stance, flat above its mid-line, while the RSI turned south, now around 44 and suggesting the decline may continue in the upcoming sessions.

Lows in the 1.2200/20 area become a first strong support from here, followed by the 1.2100 figure, where the pair topped in 2015 and 2017. A break below this last should open doors for a steeper decline, with the next relevant support at 1.1880. Resistances are 1.2340 and 1.2420/40 region, where the pair topped this last weeks, with gains beyond the area favoring a retest of the multi-year high at 1.2554.

The FXStreet Sentiment Forecast Poll shows some mixed sentiment, but what seems more relevant of the poll this week is that average targets are near the current level for almost all pairs and almost all time frames. That means investors are clearly doubting about what will happen and are not ready to trigger some directional moves. Things may change this week with the Fed, but chances, as said above are little.

In the particular case of the EUR/USD pair, the sentiment is bullish short term, but the pair is seen holding around 1.2300 weekly and monthly basis. For the 3-month view, bears outpace bulls, but stand at 48% from 59% in the previous  week, with the average target now at 1.2213 from previous 1.2181. The FXStreet.com Overview chart reflects the ongoing neutral stance, with the curve flat in the short and the longer term. In the monthly view, however, most targets accumulate around 1.2500, while in the 3-month view, 1.2000 presents the largest accumulation.