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EUR/USD Forecast: Fed to confirm or deny dollar's newborn bullish trend

  • Bearish sentiment around the EUR/USD pair increased, large sub-1.2000 targets in the 1-month view.
  • US Federal Reserve monetary policy meeting next Wednesday, focus on the statement.

 It was a bad week for the common currency,  piercing the critical 1.2100 threshold and reaching 1.2054 against the greenback,  its lowest since January 12th. The dollar was the overall winner, in a combination of soaring yields and headlines indicating that political jitters are decreasing, pulling the risk-off factor out the equation. US Government bond yields reached multi-year highs, as solid US data continued fueling speculation that the Federal Reserve will accelerate the pace of rate hike. Indeed, better-than-expected US Q1 preliminary GDP  helped to fuel the positive sentiment at the end of the week, as the economy is estimated to have grown by 2.3% during the first three months of the year. Data coming from overseas, on the other hand, was quite disappointing, while the ECB monetary policy meeting being a non-event.

In the political front, news that the US will send a delegation to Beijing to discuss and try to solve, an escalating trade war, hit the wires late Thursday, while a historical event took place this Friday when Kim Jong-un crossed into South Korea and met with President Moon Jae-in, to discuss denuclearization and  reduce the animosity.

Yields eased from records, equities recovered some ground but point to close the week in the red, yet the greenback retains its strength.

To top it all, and to confirm or deny if the American currency is in a newborn bullish trend, the Fed is having a monetary policy meeting next Wednesday. It's not one of those considered a "live-meeting," as there's no press conference scheduled and the central bank will only release the statement. Rates are expected to remain unchanged, but as usual, market players will be scrutinizing the wording of the statement in search for clues on future moves. The macroeconomic calendar will be quite busy next week, even with a holiday in the middle, as next Tuesday most of the world celebrates Labor Day. Action is any way granted.

EUR/USD technical outlook

The EUR/USD pair has broken through several major supports without blinking and has turned bearish long-term. The Fed will be the last challenge. The weekly chart shows that the pair not only slid below a daily ascendant trend line coming from last February but also below the 20 SMA for the first time this year. In the mentioned chart, technical indicators have entered bearish territory with strong downward slopes, opening doors for additional declines ahead. Furthermore, the pair is now trading below the 61.8% retracement of this year's rally at around 1.2160, now a major resistance level.

In the daily chart, the pair fell to test its 200 DMA for the first time in over a year, posting a shallow bounce afterward. Still, the price is well below the 20 and 100 DMA, with the shortest now crossing below the larger one, both around 1.2290. Technical indicators in this last time frame have decelerated their declines after reaching oversold levels, but are giving no signs of changing course, probably meaning some consolidation ahead of the next directional move. Below the 1.2050/60r region, the 1.2000 figure comes next, while the next relevant support and a probable bearish target is 1.1880. Resistances this week come at the mentioned 1.2160 level, and the 1.2240 price zone, with gains above this last favoring a correction up to 1.2290, although chances of such recovery are quite a few.

EUR/USD sentiment poll

The FXStreet Sentiment Forecast Poll shows that the positive sentiment toward the greenback keeps improving seen rallying against most of its major rivals not only next week but in the longer term. In the particular case of the  EUR/USD pair, bears are 50% or above in all the time frames under study, decreasing weekly basis from 71% to 50%, probably amid speculative interest pricing in some profit taking and an on-hold Fed, although the average target was reduced from 1.2259 to 1.2098. In the longer run, bulls are pretty much the same, when compared to the previous week, but the number of those without a clear picture decreased sharply in favor of a bearish move.

The overview chart shows an increasing bearish trend developing in market's sentiment, with the larger accumulation of possible bearish targets around 1.18/1.20 in the 1 and 3 months' perspectives. There are a few exceptions that distort the average result of the monthly view but seems market players are willing to push the pair below the 1.2000 threshold. 

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.

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