EUR/USD Forecast: ECB means trouble for the greenback this week

It was an uneventful week for the EUR/USD pair in terms of price action, ending it pretty much flat and after trading within the previous week's range. Market's attention was mainly focused on political jitters, with central banks on the background for a change. The situation between Spain's central government and the autonomic one of Catalonia has taken a turn for the worse, as seems PM Rajoy closed doors for dialogue and begun the process listed in their national constitution, to reduce the region's autonomic powers. The process has multiple phases that include the approval of the Parliament´s Senate, the discharge of the Catalonian government ,and later the approval of the whole National Parliament. But as long as it develops, investors will be wary of buying the common currency.

There were no big statements coming from US Fed's policymakers to highlight, neither first-tier data to affect the greenback. However, Wall Street kept rallying to record highs almost daily basis. For a change, European data was mixed, with inflation barely up in September in the region, but outstanding, the German ZEW survey which showed that political jitters in the region dented business confidence.

The upcoming week is fulfilled with interesting macroeconomic data coming from both economies, but it will be towards the end of it when the most relevant news will be out: the ECB monetary policy announcement on Thursday,  and US preliminary Q3 GDP on Friday.

There are market´s talks doing the rounds, and market's hopes point to the same, that the ECB will announce it will start trimming its bond-buying program starting next January, although it will be gradual, starting with some 5-20B reduction. It's still not clear whether the Central Bank will extend the QE program for six or nine months. Anyway, the meeting will be key as if the ECB doesn't make such announcement, the common currency is due to fall sharply. A cut in their monthly purchases by 10B or more, with only a six-month extension of QE, will be EUR positive.

As for US GDP, the economy is expected to have grown by 2.6% in the three months to September, following a 3.1% advance in the second quarter. Given that it's an advanced reading, the report tends to be a big market-mover, moreover if the result diverges from market's expectations. In the meantime, the dollar will likely remain afloat, as long as US equities keep rallying.

From a technical point of view, the weekly chart shows that the 20 SMA has extended its advance, and is currently converging with a bearish 200 SMA, both in the 1.1680 region, although technical indicators have kept retreating from oversold readings, heading lower with limited downward momentum and still within positive territory. The pair bottomed above the critical 1.1660 level, the low seen in August and September, limiting the bearish potential. In the daily chart, the 20 and 100 DMAs have come closer, with the shortest losing upward strength, all of which indicates decreasing buying interest. Technical indicators in this last time frame keep hovering around their mid-lines, having now turned lower, but lacking enough strength to suggest a bearish move ahead. The pair has a strong support at 1.1720, followed by a more relevant one at the mentioned 1.1660 region. Below this last, the risk will clearly turn towards the downside, with scope then for a 200 pips' slide, towards the 1.1460 price zone, a major long term-resistance between 2015 and early 2017.

The first resistance for this week is the 1.1820/30 region, followed by 1.1900 as selling interest on approaches to this last has been quite strong. Steady gains beyond it should see the pair advancing up to 1.1980, en route to 1.2101, January 2015 monthly high.

The FXStreet Forecast Poll shows that sentiment towards the common currency is clearly bullish, seen rising in the three time-frame under study, probably with sentiment being influenced by the upcoming ECB's meeting this week. The Overview chart, however, continues showing that the bullish potential is losing strength, with a neutral-to-bearish bias starting to appear. Individually, the number of bulls has increased in all the time frames under study, with a strong jump in the 3 months view, up from 41%  to 78%. The average target has barely changed, up from 1.1912 to the current 1.1968, anyway indicating that the greenback remains unattractive.

In the case of the GBP/USD pair, the short term bias is bearish according to market's sentiment, seen holding anyway above 1.3000. Bulls are the 42% in the monthly view, up from 25% last week, and with the average target barely up by some 50 pips. Bears in the three-month view are now a majority with the 48%, down from 53% last week, but with the average target pretty much unchanged, now at 1.3164. Despite Brexit uncertainties undermine the Pound, the absence of strong dollar's demand limits the possible slides.

Sentiment towards the USD/JPY pair is short term bullish, as 64% of the polled experts see are betting for an upward extension next week, with the pair targeting average 113.43. The largest accumulation of possible targets, according to the FXStreet.com overview chart, comes around 114.50, where the pair topped in May and July.  The 1 and 3 months views are mostly bearish, although in both cases the majority is below 50%. The longer the time-frame under study, the wider the range of views, meaning there's not a clear trend at the time being, although the largest number of investors are looking for a target of 113.00/115.00 which comes slightly below last week's one. 

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