EUR/USD Forecast: dollar gains for the wrong reasons not over yet

The EUR/USD pair aims to close the week lower around 1.2300, trimming most of last week's recovery. There were multiple macroeconomic events, but the market ignored them, trading once again purely on sentiment, following the lead of stocks and bond-yields swings.

Referring to macroeconomic data, and despite some back and forth in the final numbers, overall major economies are firmly in the growth path. Through these last days, the market knew that the manufacturing and services sector keep expanding at a  solid pace in Europe, barely retreating from over a decade peaks. That the Fed is more confident about the economic recovery, and while still concerned over inflation, chances are on faster rate hikes ahead.  There were a couple of things that turned on a red light: the first one, was German business confidences indexes, as both, the ZEW and IFO surveys saw disappointing numbers, although solid GDP figures partially offset those figures.  The other one, was EU inflation, as if posted a large fall monthly basis, in line with expectations and previous estimates, but indeed something that if it keeps happening, will cool down expectations of the ECB ending QE sooner. European policymakers, however, maintain a cautious stance over the matter, trying to prevent the common currency from appreciating much further.

US indexes are poised to end the week with modest losses after another week of wide intraday move that reflect the uncertainty and the fears higher rates will mean to the US economy. US Treasury yields are steady on Friday, but reached fresh multi-year highs during the week, fueling fears higher borrowing costs will affect companies' profits, offsetting the benefits of lower taxes. Indeed, there's no equilibrium and investors stand on their toes, and explosive swings came without notice.

Next week, Germany and the EU will release their preliminary inflation numbers. Given the outcome of January's one, I think they will be more relevant than usual. In the US, the second revision of Q4 GDP will hardly affect the market unless there's a strong divergence with the previous estimate, with attention focused on core CPE inflation, Fed's favorite inflation figure to be out next Thursday. It will be a busy week that may not see majors reacting to them, as seems more than likely that attention with remain in bonds and equities, but will be a barometer of long-term economic health. Once the market move passes this "fear" stage, the data that are being ignored today will weight on defining a trend.

Taking a look at the weekly chart, the pair is lacking direction ever since late January, up and down between 1.22 and 1.25 for a fifth consecutive week.  Technical readings in the mentioned chart maintain the risk skewed toward the upside, as despite losing upward momentum, technical indicators hold well above their mid-lines, while the pair is roughly 400 pips above a bullish 20 SMA, which keeps advancing above the larger ones. In the daily chart, the pair is still developing a possible double top figure, nearing its neckline at 1.2205, the low set this February, level that needs to be broken to confirm the figure.

The weekly low at 1.2259 is the immediate support ahead of the more relevant 1.2205, with a break below this last signaling a possible 350 pips decline, which will be the target of the double top figure. In the way, 1.2100, where the pair topped in 2015 and 2017 stands as a huge obstacle. The pair has an immediate relevant resistance area at 1.2380/1.2420, followed by 1.2480. Seems unlikely the market will find a reason to push the pair this high during the upcoming days.

The FXStreet Forecast Poll presents quite a mixed stance for the greenback as its seen appreciating against European currencies, but losing ground against high-yielding and commodity-linked currencies. For the EUR/USD pair, the sentiment is bearish in all the time frames under study, although the average targets remain between 1.22 and 1.23. The number of bears has increased sharply in the shorter term, up from 26% to 69%, while in the monthly view, bears jumped from 28% to 50%.

The Overview FXStreet Chart shows that the bullish case continues losing adepts, as a larger accumulation of targets below the averages, closer to 1.19/1.20. The longer-term trend has lost momentum and for now seems to have turned flat. For the overall collective sentiment, 1.2100 seems to be a line in the sand that needs to be crossed for a long-term dollar's advance.