EUR/USD Forecast: failure at key long-term resistance gives dollar a chance

  • Central banks took center stage this week, but both leveling down.
  • EUR/USD expected to advance within range, bearish longer term.

 The common currency had a good week, or better said, the dollar had a terrible one. The EUR/USD pair aims to finish it with gains, having reached a fresh 3-month high of 1.1569, although still unable to clear a key resistance, the 23.6% retracement of its 2018 decline, as the pair has spent the last three days of the week battling with it.

Such peak was the result of broad dollar's weakness triggered by the Fed's officials and the FOMC Meeting's Minutes. Different representatives from the central bank spoke these days, aligned behind a wait-and-see stance over the future of rate moves, reiterating that future moves are data-dependent. However, and for the first time in years, a rate cut was named by Atlanta's Bostic, generating a dollar's sell-off.

FOMC Meeting's Minutes showed that policymakers can be patient acknowledging that the monetary policy path is now "less clear." More relevant, some members were against December's hike although most agree that "some further gradual increases" would be appropriate.

Equities welcomed the news, bid previously by news from early this week suggesting progress in the US-China trade relationship following three days of talks. On Friday, however, sentiment turned sour ahead of Wall Street opening, with European and American indexes turning negative. US inflation in line with the market's expectations, which mean no pressure on the Fed, alongside profit-taking ahead of the weekend, could well be the catalyst of these declines.

The ECB released the Accounts of its December Monetary policy, which pretty much showed that the cut of 2019 growth forecast was used to prevent stating that downward risks have increased. Draghi and company had noted that "uncertainties and risks related to geopolitical factors, the threat of protectionism, vulnerabilities in emerging markets and financial volatility had remained prominent," but replaced "downward" with "fragile and fluid" when referring to their assessment of risk.  Not a big shocker, but clearly in line with the market's growing fears of a global economic downturn.

European data was mixed, but overall supporting market's fears of an economic slowdown, as Retail Sales improved monthly basis in Germany and the Union, but production figures were a big disappointment, as well as the  EU Economic Sentiment Indicator which fell to 107.30 in December.

Meanwhile, the US government shutdown continues, with little data being release these days. US President Trump has menaced to end the stalemate by declaring a national emergency. The only relevant figure released in the US was December inflation, which anyway came in as expected, being no shocker. More of the shutdown and China is expected next week.

EUR/USD technical outlook

The EUR/USD pair trimmed half of its weekly gains on sudden dollar's strength due to collapsing equities at the end of the week, battling now with the 1.1460 figure. The weekly chart shows that its set to close right below a mild bearish 20 SMA, well below the 100 SMA which stands in the 1.1600 price zone, while technical indicators maintain upward slopes at their highest in two month but within negative levels, all of which falls short of indicating further gains ahead, moreover considering the pair  was unable to hold on to gains above 1.1530, the 23.6% retracement of the 2018 yearly decline.

In the daily chart, the pair is battling with its 100 DMA, above a bullish 20 DMA but still well below a strongly bearish 200 DMA which comes at around 1.1630. Technical indicators in this last time frame have turned lower, holding in positive ground but suggesting more declines ahead. The downward momentum will likely accelerate on a break below 1.1420, with scope then to test the 1.1300 price zone.

EUR/USD sentiment poll

The FXStreet Forecast Poll shows that investors ´sentiment has been affected by the US Federal Reserve, has bulls dominate the weekly and monthly perspectives, although with the average targets at 1.1527 and 1.1456 respectively, indicating that their conviction fades in time. For the 3-month view, however, bears are a majority of 46%, aiming average 1.1441.

The Overview chart shows a strong bullish slope in the weekly moving average with the largest accumulation of targets at around 1.1600. For the 1 month, perspective the moving average is also bullish, although there's an even share of targets above and below the current level. Finally and for the 3-month view, the moving average lost direction, with a wide spread of possible targets reflecting the ruling uncertainty.  

Related content:

USD/JPY Forecast: Different reasons, same downwards direction

USD/CAD Forecast: After CAD climbed with crude, the BOC is eyed

Bitcoin Top Price Prediction: Buying opportunity? There are 3 reasons to be optimistic

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.