EUR/USD Forecast: EU´s CPI and GDP to make it or break it

EUR/USD´s rally extended for a third consecutive week, with the pair settling at fresh 2017 highs and at levels last seen in January 2015 above 1.1700 and not far from 1.1776, the high reached following the latest Fed's monetary policy decision. The US central bank maintained the status quo and barely changed the wording of its previous statement, indicating that they will start reducing its $4.5B balance sheet "relatively soon," after unanimously decided to keep rates on hold. On inflation, the Fed sounded a bit more concerned than previously, persistently low, despite strength in the jobs' market. Market now foresees some clearer clues on normalization of the balance sheet coming next September, but doubts the Central Bank will be able to provide a third rate hike this year, unless inflation picks up.

Beyond the Fed, data coming from US was mixed, with Durable Goods Orders picking up in June, but the core reading showing a tepid advance, and a solid Q2 GDP headline that anyway indicated softening inflationary pressures. Bottom line, inflation is still an issue in the US and a drag for the Fed.

Adding to the picture was the repeal and reject Obamacare bill battle, as Trump got a small victory, by finally getting enough to support to get it into the Congress, but the optimism was quickly offset by news showing that the US Senate rejected the project, in late vote on Thursday's nigh. A scaled-down version of the bill was voted down by  three Republican senators, resulting in a 51-49 vote against it.

In Europe, data released at the beginning of the week showed that growth remained strong at the beginning of the third quarter, with preliminary July Markit PMIs missing expectations, although with the indexes still near six-year. German inflation released on Friday surprised to the upside, rising by 0.4% in July according to preliminary estimates, doubling market's expectations of 0.2%, and when compared to a month earlier. Annual inflation was up by 1.7%, with the core reading resulting a 1.5%, in line with June's figure, but above market's expectations of 1.4%.

The numbers added pressure on the ECB over reducing stimulus, which will likely back further EUR's gains. The risk is that increasing inflationary pressures and further gains in the common currency will start weighing on local growth. The EU will release its inflation figures next Monday, and Q2 preliminary GDP on Tuesday, when the US will unveil its PCE inflation data.

From a technical point of view, the bullish bias remains firm in place, as despite being overbought, there are no signs that the upward momentum is exhausted, or about to ease. In the daily chart, the price is nearing the top of a daily ascendant channel coming from mid May, in the 1.1810/20 region for the upcoming week, whilst technical indicators resumed their advances after a modest correction of overbought conditions. Moving averages in the mentioned time frame, maintain their strong upward slopes far below the current level. In the weekly chart, the pair faces a major resistance at 1.1800, the 200 SMA, while the RSI indicator keeps heading north around 75, but the Momentum turned south, still within overbought territory.

Beyond the mentioned 1.1820 region, speculative interest will likely try to push it towards the 1.2000 threshold, a major psychological level before deciding to take some profits out of the table. To the downside, 1.1710 comes as an immediate support, followed by 1.1612, the weekly low and also 2016 high. A downward acceleration below this last could indicate a steeper downward correction towards the critical 1.1460 area.

Market has continued to gave up on the greenback according to the latest FXStreet Forecast Poll, with the American currency seen shedding ground next week against all of its major rivals. In the longer run, however, it seems that speculative interest believes the greenback is near a top, as the number of dollar bulls in the three month view has increased strongly in most major pairs.

 For the EUR/USD pair market goes for a bullish extension next week, although  in the longer run the dollar could recover some ground, with the 3-month target now seen at 1.1409 from previous 1.1537. Bears in longer perspective jumped to 86% from 48% in the previous week.

In the case of the GBP/USD pair, bulls hold the lead next week, up to 67% and with an average target of 1.3140, but turn to 74% in the wider view, aiming for an average of 1.2851, while last week bears were just 50%.

The USD/JPY is no exception to the rule, short term seen declining by 60% of the polled experts and hardly seen beyond 112.00, but with the dollar gaining some traction afterwards, with bulls at 46% in the monthly perspective and 55% in the quarterly one, barely changed from the previous week's outlook. 

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