EUR/USD Forecast: oh well! let's keep buying the greenback

• Short-term bearish sentiment intensifies around the EUR/USD pair, but closer to a bottom.
• Data released this week kept highlighting divergences in future monetary policies.

After the pause of the previous week, the dollar came back with a vengeance, reaching fresh yearly highs against the EUR, and multi-month ones against other rivals.  The EUR/USD bottomed mid-week at 1.1763 with the greenback's rally fueled by soaring Treasury yields, which reached multi-year highs. The yield on the benchmark 10-year Treasury note peaked at 3.12%, its highest in seven years, while the 2 year-note yield reached 2.598%, its highest since August 2008. Yields eased just modestly from such highs ahead of the weekly close, with the 10-year note stabilizing around 3.10%.

But the EUR/USD pair's decline was not all about US Treasury yields. GDP and inflation data in Germany and the Union were utterly soft. The German economy grew by just 0.3% in the three months to March, half the outcome of the previous quarter, while EU preliminary Q1 GDP resulted at 0.4% as expected  April inflation for both came in-line with market's forecast, below March figures and far from the ECB's "close, but below 2.0%." On a brighter note, although not that bright, the ZEW survey for May showed that business sentiment's slump stalled, unchanged in Germany at -8.2 and up for the Union to 2.4 from the previous 1.9. These figures, only confirm the cautious stance of the ECB about trimming easing too early. US data, on the other hand, were not strong, neither weak, a mixture of minor figures that have no chances of moving the Fed away from its monetary policy path. 

With no fresh clues, the market spent these last couple of days consolidating around 1.1800, yet the greenback resumed its advance Friday, as in the absence of data from Europe or the US, softer-than-expected Canadian employment figures gave the greenback a boost, resulting in the EUR/USD pair reaching a fresh yearly low of 1.1749.

The upcoming week will start with a holiday in Europe and macroeconomic action kicking in on Wednesday,  with the May preliminary Markit PMI for the EU and the US. The Union figures are expected to show modest downticks, while US ones are expected to improve, which will mean that the current background for the EUR/USD pair will remain the same. Minutes from the meetings of the Fed and the ECB will also be out next week, and while investors will be looking there for clues on future central banks' actions, seems unlikely those Minutes will bring surprises.

EUR/USD technical outlook

Despite overstretched, the EUR/USD pair's decline seems that still hasn't found a bottom. The weekly chart shows that it has moved way below its 20 SMA, but above the 100 and 200 SMA, both confined to a 50 pips' range, reflecting the loss of the upward strength that dominated the pair during the first four months of the year. Technical indicators in the mentioned chart remain within bearish territory, with the RSI heading sharply lower around 36, and the Momentum lagging as it reflects the weekly opening, flat anyway within bearish territory. In the daily chart, the corrective movement seen late last week has left the Momentum indicator directionless, but anyway below its mid-line, while the RSI heads south at 23. The 20 DMA heads south almost vertically after crossing the longer ones, in line with further declines ahead despite the extreme oversold conditions. The immediate support is 1.1740, December's low, with a break below it exposing a stronger one, at around 1.1660. The pair will need a strong catalyst to break below this last, but if it does, the 1.1600 is the next possible bearish target. The 1.1820/50 region is now the immediate resistance, with gains beyond the level favoring an upward corrective movement up to 1.1960.

EUR/USD sentiment poll

The FXStreet Sentiment Forecast Poll shows that love for the greenback will likely persist this upcoming week, seen rising or steady against all of its major rivals, although a strong reversal is seen afterward. In the particular case of the EUR/USD pair sentiment is bearish short-term, with the number of bulls decreasing from 77% to just 24% and the average target downgraded roughly 200 pips, from 1.1990 to 1.1780. The longer-term perspective, however, is little changed as bulls are still a majority in the three-month view, with the average target little changed, now at 1.2062.

The FXStreet Overview chart for the pair shows that despite the average targets may not have changed that much, except short-term, bears are still in control. In the monthly view, the dispersion is interesting, but the clearer accumulation points to 1.1600. In the 3-month view, the picture is mixed, but the moving average presents a modest downward slope, and the number of those seeing the pair sub-1.2000 kept increasing.