|

EUR/USD Forecast: ECB to give bulls a reality check

  • Markit will release the preliminary estimates of October PMI this week.
  • Mario Draghi will preside his last monetary policy meeting next Thursday.
  • EUR/USD set to gap at the weekly opening, Brexit to set the direction.

The EUR/USD pair has reached a fresh seven-week high of 1.1152 this Friday, amid a better perception of risk factors fueling demand for high-yielding assets in detriment of the greenback. The initial catalyst for the pair’s rally was the announcement that the United Kingdom and the European Union made an accord on the UK’s departure from the Union. Optimism cooled down after the DUP announced it doesn’t support such a deal. The UK Parliament will have an extraordinary session this Saturday, anticipating opening gaps next week, probably larger in GBP crosses but extending into most major pairs.

Things were quieter in the US-China trade front after the latest round of negotiations ended on a high note last week. Both countries are set to continue negotiating, although there’s no certain date on when representatives are to resume talks. A comfortable tension persists, although the matter has been set aside and overshadowed by Brexit.

Upcoming signs of economic health

The positive sentiment has underpinned the shared currency, but is it enough? It is in the short-term, but at some point, the market would take account there are no valid reasons to keep buying the EUR.

European data has been signaling a steepening economic slowdown, and there have been market talks suggesting fiscal stimulus in Germany. Macroeconomic figures released these days confirmed that the downturn would extend into Q4, with September inflation steady at 1.0% YoY. In this scenario, the ECB would need to keep stimulating the economy. Not that the US may not follow the same path, but despite fears, it is not there yet.

Believe it or not, a Brexit deal could save the EU. Over the past three years, rivers of ink have been wasted on what would the effects be for the UK, ignoring the other half of the equation. European politicians have hidden their concerns pretty well, but the fact that they approved in a blink PM Johnson’s proposal after offering an extension, should ring some bells. This weekend events could be critical for European currencies.

Fresher signs of EU economic developments will be out next week, as Markit will release the preliminary estimates of October PMI. The ECB is scheduled to meet and announce its latest monetary policy decision next Thursday. It will be Mario Draghi’s farewell, as the current President of the central bank ends its mandate by month-end, and will be replaced by Mrs. Christine Lagarde. It seems unlikely, therefore, that he will make shocking announcements.

In the US, the most relevant macroeconomic figures will be September Durable Goods and the preliminary October PMI.

EUR/USD technical outlook

The pair is now trading some 300 pips above the multi-year low set this September, up for a third consecutive week. In the long run, the bearish trend is finally giving some signs of easing, although there’s a long way ahead before a bullish trend surges.

In the weekly chart, the pair is battling with a bearish 20 SMA, the first time around it since early August. The 100 and 200 SMA remain far above the current, while technical indicators continue advancing, approaching their midlines from below.

In the daily chart, the pair is crossing above its 100 DMA, also for the first time since early August, although back then, it failed to surpass the indicator. The Momentum keeps heading north, despite being in extreme overbought readings, while the RSI is barely decelerating near 70, favoring additional gains ahead, particularly if the pair closes the week above the critical 1.1160 resistance. Beyond it, the next possible target comes at 1.1200.

The 1.1100 figure is the immediate support, with a break below it putting the pair again in the bearish path. The next supports come at 1.0940 and 1.0870.

EUR/USD sentiment poll

The FXStreet Forecast Poll indicates that the ongoing advance is corrective, and could extend next week, as 82% of the polled experts are bullish. Such a stance offers a drastic U-turn, as, in the monthly view, bulls account for 15%, while bears jump to 85%, with the average target below 1.1000. In the three-month view, bears retain the majority with 80%, targeting on average 1.0937.

The Overview chart shows that in all the time-frame under study, chances that the pair moves beyond 1.1200 are quite limited. The short-term moving average is firmly bullish, with the momentum fading in the 1-month view, to turn flat in the longer-term perspective.

Related Forecasts: 

USD/JPY Forecast: Can Brexit optimism send it to 110? Durables and trade also eyed

GBP/USD Forecast: Backing Boris? Crucial Brexit vote in parliament set to trigger wild volatility

Author

Valeria Bednarik

Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.

More from Valeria Bednarik
Share:

Editor's Picks

AUD/USD rises to 0.6950 as USD slips on Fed's Warsh

AUD/USD regains traction and extends the bounce toward 0.6950 in the Asian session on Friday. Fed Chair Warsh's comments reinforce the selling pressure on the US Dollar, allowing the pair to stretch higher. Warsh said that he remains committed to delivering price stability without giving away anything on future interest rate path.

USD/JPY falls in symc with USD, gives up 158.00 after Warsh's speech

USD/JPY has come under fresh selling pressure and gives up 158.00 in the Asian session on Friday amid the emergence of fresh US Dollar selling. Fed Chair Warsh's non-committal commentary on the future tightening path, weighs on the US Dollar and the pair.

Gold looks vacillating above $4,150

Gold alternates gains with losses below the key $4,200 mark per troy ounce on Friday. The yellow metal’s irresolute price action comes in response to a modest pullback in the US Dollar and a tepid recovery in US Treasury yields across the board.

Bitcoin steadies at $82,000: The five forces crushing the Uptober rally

Crypto markets have remained under pressure so far in October, with Bitcoin (BTC) sliding below $80,000 earlier this week before recovering to around $82,000 on Friday, as macroeconomic headwinds and cooling demand weigh on the market.

The Fed just got a second hot inflation number. Here's what the diesel signal is really saying
The Federal Reserve (Fed) faces a renewed inflation challenge after two consecutive reports showed price pressure intensifying across the US economy. September's Consumer Price Index (CPI) confirmed accelerating consumer inflation, while the Producer Price Index (PPI) revealed an even sharper rise in business costs. Behind both reports lies a common factor: energy prices.
Everyone's dumping Gold after hot US inflation. Here's why $4,100 could be a floor, not a cliff
Gold (XAU/USD) is recovering from a sharp sell-off triggered by hotter-than-expected United States (US) inflation data released on Wednesday. The precious metal briefly plunged toward $4,073 as investors increased their bets on further Federal Reserve (Fed) interest rate hikes before recovering as US Treasury yields and the US Dollar (USD) reversed their initial gains.