EUR/USD Forecast: EUR demand receded, but nobody wants the greenback

A dull week ended as it started, with the EUR/USD pair unchanged around 1.1190, posting a second consecutive weekly doji, a clear reflection of the ongoing uncertainty surrounding the greenback. Speculators are still scratching their heads after the Fed announced that it will keep on raising rates, despite softer inflation figures. Policymakers have taken every opportunity available to repeat their hawkish stance, adding that the central bank is ready to begin shrinking its balance sheet "soon." But this aggressive stance is not enough to offset political concerns, another big factor capping dollar's gains these days. This week, US Senate Republicans unveiled their proposal to replace the Obamacare, but met opposition within their own party, as the bill reduces benefits to the poor which will have to spend more for less coverage, while cutting taxes imposed by the Obamacare to wealthier Americans.  Chances this bill passing the Congress are limited, not to mention the big tax reform promised in February is still to get into the Houses. Trump maintains the focus in Russia and North Korea, while growth measures are still in a limbo, clearly affecting any possible demand for the US currency. Surprisingly, stocks seem to be indifferent to these woes, as despite having retreated this week, the US three major indexes stand near record highs.

The absence of macroeconomic data all through the week helped keeping the pair range bound, although on Friday, the EU got some support from June flash Markit PMIs. The manufacturing PMI for the region surge to 57.3, its highest in six years, beating expectations of 56.8 and above May's reading of 57.0. The Composite PMI, however, retreated to its lowest in five months, down to 53.00 from 53.6 amid a slowdown in services activity all through the region. Nevertheless, the figures for the whole area indicate that the strong pace of economic growth continued during the second quarter of the year. In the US, PMIs were a miss in both sectors, below forecasts and previous readings, another factor holding back the greenback.

In the meantime, Brexit negotiations started with an ultra-cautious tone and the felling that, given the outcome of the latest election, UK's PM May will have to take a more humble stance against its European counterpart, leading to a softer Brexit.

As for the EUR/USD pair´s technical outlook, it continued trapped between 1.11 and 1.13 for a fifth consecutive week and despite EUR's demand seems to have eased, the possibility of a bearish breakout still seems well limited, with the pair holding above the 23.6% retracement of its bullish run between April and June around 1.1120. In the weekly chart, the price remains above its 20 and 100 SMAs, with the shortest having extended the advance below the largest, indicating that the risk remains towards the upside, whilst technical indicators have lost their downward strength after pulling back from overbought readings earlier this month, now consolidating far above their mid-lines. There's no bullish strength indeed, but nothing suggests at this point that the pair will extend its decline during the upcoming days. In the daily chart, the pair presents a neutral stance, having held below a horizontal 20 DMA all through the week, now a handful of pips below it, while technical indicators have recovered within bearish territory, now heading north around their mid-lines, not enough to confirm additional gains at this point.

The pair still needs to advance beyond 1.1300 to confirm a bullish continuation, with room then to rally up to 1.1460 region, a major long term resistance that contained advances since January 2015. An intermediate resistance comes at 1.1360/80, while gains beyond the mentioned 1.1460 level seem unlikely at this point. To the downside, the immediate support is the 1.1110/20 region, but the key is 1.1075, the low set on May 18th, and the level to break to confirm a steeper decline, with scope then to test the 1.1000.

At a first glance, the FXStreet Forecast Poll shows that sentiment favors the greenback, seen advancing against all of its major rivals long and short term, with some exceptions in commodity-related currencies, as the Aussie is seen higher next week.

When it comes to the EUR/USD pair, bears are clearly a majority in all the time-frames forecasted, but the average targets are quite small: the pair is seen between 1.1000 and 1.1100 for the upcoming months, a result of the latest consolidative range leaving investors clueless on direction. In a three months view, the target's range is quite wide, with the pair seen as low as 1.0600 and as high as 1.1800, with this last being a clear exception. The number of short-term bears decreased, from 73% to 64% in a weekly perspective, but increased longer term, representing now a 62% by the end of the quarter from previous 60%.

For the GBP/USD pair, bears are a low majority, with a large increase of those seeing it sideways. In the 1-week view, the pair is seen averaging 1.2672, with bears representing 55%, and some pips lower in a month, despite the number of bears decreases to 45%. Brexit and political jitters are clearly affecting sentiment towards the Pound, hardly seen beyond 1.3000 during the next three months.

The bullish sentiment surrounding the USD/JPY suffered a major setback this week, with the numbers of bears shrinking drastically. Last week, 89% of the polled experts were betting on a bullish run up o 112.02 in average, while for this week, bulls in the same time frame are just 55%, and the average target was reduced to 111.53. In the 3-month view, the scenario is quite the same, with bulls now representing 53% from 83% last week, now seen around 112.80. Despite speculation of further gains ahead, 120.00 is still out of the table. 

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