EUR/USD Forecast: EUR rally set to extend, but 1.1000 is still too far away

The common currency got a nice double boost this week from central banks, with political woes taking a back step, but also present in the EU. The EUR/USD pair is poised to close the week near an over 1-month high achieved this Friday at 1.0782, with scope to extend its gains during the upcoming days.

The first impulse came from the US Federal Reserve. Yellen and Co. had largely anticipated the rate hike delivered this past Wednesday, which was fully priced in ahead of the monetary policy meeting. The accompanying statement surprised to the downside,  being far less hawkish than expected, as the US Central Bank showed no intentions to fasten its tightening pace, while assuring that they may not need too many hikes to reach what they consider a neutral level. The announcement was against market's expectations, resulting in a dollar's sell-off.

In the EU, there were two big headlines that fueled the EUR's rally: the first was that the far-right failed its first European test. Dutch elections resulted in a victory of the ruling party, who got 33 seats, while far-right Wilders got 20 seats, less than what polls suggested ahead of the event. While Netherland's elections are indeed not as relevant as French or German ones, it was taken as a barometer of people's sentiment towards more EU exits, within the region.

The other event that backed the euro was an interview given by Ewald Nowotny, the Austrian Central Bank governor and member of the ECB's Government Council. He spoke openly about discussions within policy makers over raising rates in the EU and ending the QE program. Nowotny  confirmed what Draghi refused to discuss in the latest ECB's press conference, that is, that the central bank could begin retrieving easing sooner than 2019.

The rallied pared on Friday, with the pair marginally lower in the last day of the week, amid strong US confidence data, as the Michigan consumer sentiment index for March came in at 97.6, beating expectations of 97.0 and previous 96.3. Also, an Opinionway poll on French elections, showing Marine le Pen leading with 28% over Macron 25% in the first round, weighed on the EUR.

Nevertheless and from a technical point of view, the pair presents a bullish stance, particularly after regaining the 1.0700 level. Technically, the daily chart shows that the 20 DMA is crossing above a bearish 100 DMA, although with limited angle, whilst technical indicators are giving back some ground near overbought readings, not enough to confirm upward exhaustion or suggest an upcoming downward move. In the same chart, the pair presents two immediate relevant resistances, the first at 1.0820, as the level is the 50% retracement of the post-US election slide, and the 200 DMA, around 1.0860. It would take a clear break above this last to support additional gains up to 1.0935, the 61.8% retracement of the same decline.

Further supporting the upside are technical readings in the weekly chart, as the price has advanced beyond its 20 SMA for the first time this year, although given that the indicator maintains its bearish slope, the upward signal is not that strong. In the same chart however, technical indicators head north above their mid-lines for the first time since September 2016, anticipating additional gains.

The upward potential will ease on a break below 1.0700, and got lost on further slides below 1.0635, which will open doors for a retest of 1.0565.

Sentiment towards the greenback has suffered a sharp u-turn according to the FXStreet Forecast poll, as the American currency is seen falling against most of its major rivals, except against the Pound, at least for the upcoming week.

The EUR/USD pair is seen bullish for this upcoming week by  50% of the polled experts, against just 17% on the previous week, when 75% were beating for a bearish move. In the longer run, however, the dollar still rules, with over 60% of traders seeing it falling after a month. Still, market has upgraded its final target, now seen at 1.0558 in a three-month view, against past week's target of 1.0456.

The outlook for the GBP/USD  pair remains negative, as the Brexit looms, and investors are not willing to invest in the Pound. Bears are a large majority in all the time frames analyzed, with the pair still targeting 1.2178 in a three-month view, a couple of pips above the previous one, although the risk of a break below 1.2000 has increased.

As for the USD/JPY, the pair is seen rising from the current 113.00 region, but while the number of bulls have increased, the average target price remains low, with the pair seen at average at 114.30 in a month and at  114.81 in a three-month view, pretty much, the same levels seen last week. Breaks below 110.00 are seen as exceptional for this upcoming quarter, while 120.00 is starting to appear as a probable bullish target among the most optimistic.

.