The past week was marked by scandals surrounding the US president, which ended up prompting a dollar's sell-off, and also affected equities worldwide. News that Donald Trump asked former FBI director Comey to drop the investigation on the Flynn-Russia affair, opaque early week headlines, indicating that the US president shared classified information with Russian diplomats. The "Russiagate" that become when Michael Flynn, the National Security Advisor, was forced to resign over reports that he lied over conversation with Russian officials to Vice President Pence, last February. The scandal escalated when Trump fired Comey, and reached its zenith this week, with a possible impeachment sounding out loud.
Whether Trump will survive this political chaos or not, the damage to the financial world is done. Markets cheered his victory, accompanied with promises of growth-boosting promises, including a tax reform, and infrastructure investment, and even accepted after a couple of months that it would take longer than expected to reach such goals. But now, those goals seem too far away to even care, and worse, investors doubt Trump will be capable to even get near.
Unwinding bets of a bright future for the US was the name of the game these last days, and will likely continue. Sentiment towards the US deteriorated that much that even bets for a June rate hike have decreased, despite US data released this week was generally encouraging.
Is the dollar doomed? Indeed, NO. The US continues being the world's largest economy and will take more than an impeached President to take it down. But the poor greenback is set to keep on suffering.
In the meantime, German data continues resulting upbeat, while European inflation remains on the rising path, holding near ECB's target for the second consecutive month. Super Mario will have a hard time to maintain its rhetoric over delaying tapering, and bets are rising over a possible more hawkish stance in the upcoming June meeting, although that is something yet to be seen.
Following a downward corrective move on Thursday, the EUR/USD pair resumed its advance and trades at its highest since early November, when US election's result sent the pair to a peak of 1.1299, before changing curse and plunging pretty much 800 pips in a matter of days. Now hovering around 1.1200 the pair surpassed its weekly 100 SMA for the first time since August 2014, while technical indicators have accelerated north well above their midlines and nearing overbought readings, reflecting the strength of the ongoing demand. In the daily chart, the bullish momentum is also well reflected with the 20 DMA having accelerated north above the largest ones, and indicators maintaining their bullish strength at May highs, currently entering overbought territory.
For the upcoming week, 1.1260 is the immediate resistance, a strong static level, followed by the mentioned post-US election high at 1.1300. Should the rally extend beyond this last, the next bullish target comes at the 1.1440/60 region, a level that contained advances, with limited and short-lived exceptions, since early 2015. Speculative interest is now seeing dips as buying opportunities, with 1.1100 and 1.1000 being the main supports. Only in the unlikely case of a break below 1.0930, the pair will lose its bullish strength and turn back south.
The FXStreet Forecast Poll seems to reflect the soft tone of the greenback short term, but taking into account that the greenback, is still the king. For the EUR/USD, sentiment is bearish in all of the time frames under study, but with higher average targets. The pair is seen holding above 1.1100 next week, but down to 1.0828 in average in the longer run. Bets pointing for a break below 1.0600 are quite limited, despite bears account for 80%.
Bulls lead the way next week in the GBP/USD pair, but sentiment reverses afterwards, probably amid the general cautious stance ahead of June elections, and further, the Brexit. Despite supportive macroeconomic figures, speculative interest is reluctant to bet on long-term gains in the UK currency, with the pair seen at 1.2641 in three months, as bears represent 79%, against 5% who see an advance.
The USD/JPY is seen recovering some ground, but targets have been clearly lowered rather reflecting yen's weakness than dollar' strength. Bearish in the weekly view, the key 110.00 psychological barrier will likely contain declines. Bulls surge to 50% in the monthly view, less than the 54% of the previous week, while the average target is 111.07 against previous 114.13, with optimism increasing as time goes by, but with hardly seen beyond 115.00.
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