EUR/USD Forecast: could EUR's recovery continue?

  • A shortened week to gyrate around the EU's business growth and US Retail Sales.
  • EUR/USD corrective advance could turn into a bullish run once beyond 1.1400.

The dollar edged lower at the end of the week amid the less likely trigger: the US earnings season kicked started with a bang, with JP Morgan, the biggest US bank by assets, posting record fQ1 revenue and profits, beating market's estimates.  Risk appetite took over financial boards at the end of the week after first-tier events failed to break the deadlock in price action. The EUR/USD pair advanced beyond the 1.1300 level for the first time this month, hitting 1.1323 early Europe and holing nearby amid soft US Consumer Confidence.

This week, speculative interest confirmed that central banks had entered a new cycle of cautious dovishness, amid concerns about a steeper global economic slowdown. The ECB kept rates unchanged in negative ground as expected, warning that data gathered by policymakers in recent weeks had confirmed “slower growth momentum” in the Union. The statement signaled that European Central Bank won't move rates this year and that details about the third round of TLTROs will be announced during the next meetings. Also, policymakers are 'skeptical' on tiered deposit rates, and mitigating the possible effects of negative rates on lenders, doesn't seem a priority.

The US Federal Reserve released the Minutes of its latest meeting, noting that policymakers are ready to move interest rates either way as needed, although current risks will likely mean rates will remain pat throughout the year. Both central banks, then, indicated a  wait-and-see stance for the upcoming months.

In the data front, US figures were generally encouraging, with unemployment claims down to their lowest in almost five decades, indicating that the labor market remains firmly strong, while inflation remains steady around Fed's target, despite core CPI dropped to 2.0% YoY in March from the previous 2.1%.

Scarce figures from the Union were mixed, with German inflation steady at 1.4% YoY in March, and EU's Industrial Production falling by less-than-expected.

The US economy is 'healthier' than that of the EU. US rates are at 2.25/2.50% while EU's one stands at 0.0%. And while this week, the common currency stands victorious over its oversea rival, a sustained rally of the EUR that could extend in time remains unlikely. The pair, however, could advance in corrective mode.

The upcoming week will start with the release of German's April ZEW survey on Tuesday and EU March inflation on Wednesday, both measures of local economic health. However, the critical figures will come on Thursday, with preliminary April Markit PMI for the Union and US March Retail Sales. Markit data could reaffirm or deny the previous fall to multi-year lows in manufacturing activity, and the EUR will react in consequence. It will be a shortened week amid the Easter Holiday, with most markets closed next Friday. Volumes will likely start decreasing Thursday, US session.

EUR/USD technical outlook

The EUR/USD pair trimmed this week the losses from the previous three, but in the long-term, the advance remains as corrective. The pair is currently around the 50% retracement of its latest daily decline between 1.1447 and 1.1183, with the 61.8% retracement of the same slide at 1.1345, with the bullish case becoming firmer next week should the price run above it. However, a long-term descendant trend line coming from September high at 1.1723, currently stands around 1.1390 these upcoming days with a break through it further fueling buying interest.

In the weekly chart, the 20 and 200 SMA converge with the mentioned 61.8% retracement Fibonacci resistance, reinforcing it, while the 100 SMA stands over 300 pips above them. Technical indicators recovered, but remain within negative levels, reinforcing the concept that the ongoing advance remains corrective.

In the daily chart, the pair overcame a bearish 20 DMA, but the 100 DMA also converges with the 61.8% Fibonacci level, turning the 1.1345 level even stronger. Technical indicators in this last time frame are entering positive ground with solid upward slopes, but remain within neutral levels. The immediate support comes at 1.1280, followed by 1.1245. Below this last, the 1.1175/1.1200 price zone comes next.

EUR/USD sentiment poll

The FXStreet Forecast Poll shows that speculative interest expects the dollar to remain under pressure next week, but a sustainable decline of the American currency is not yet there, given that bulls only dominate the short-term. In the case of the EUR/USD pair,  58% of the polled experts see the pair advancing, with an average target of 1.1332. When it comes to the 1 and 3 months perspectives, however, bears are a majority of 62% and 51% respectively.

The Overview chart offers an interesting picture, as moving averages have turned higher in the three timeframes under study, although not yet at highs that can confirm a flip in sentiment. In the 1-month view targets accumulate around the 1.1200 level with a 200 pips' deviation either side, although as time goes by and according to the 3-month moving average, a neutral-to-bearish picture persists.  

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