EUR/USD Forecast: Powell fully controls the dollar

• EUR/USD at yearly lows and poised to continue falling.
• The US Central Bank once again put the greenback on the bullish path.

The US Federal Reserve reaffirmed the dollar's leadership this week, resulting in the EUR/USD pair ending the week not far above a fresh yearly low of 1.1110. The US Federal Reserve decided last Wednesday to keep its interest rate unchanged as anticipated between 2.25% and 2.5% but cut the interest rate on excess reserves, known as IOER, to 2.35% from 2.4%. The initial reaction saw the greenback collapsing with this cut, although as Powell developed the press conference, he made it clear that it was a technical move that by no means anticipates further rate cuts ahead.

In fact, Powell & Co. attributed low inflation in the first quarter of the year to 'transient factors,' while they see that  the economy continues to grow 'at a solid rate.' Ahead of the event, US President Trump criticized the Fed's high-rates policy again and even called for a 1 point rate cut. However, the Fed pushed away concerns of an early rate cut. “We don’t see a strong case for moving in either direction,” Powell said, before repeating that the central bank is a 'nonpolitical institution.'

The shared currency enjoyed a period of demand earlier in the week, as the preliminary EU Q1 GDP beat expectations by printing 0.4%, doubling the previous quarter reading of 0.2%. German inflation beat expectations, rising by 2.0% YoY in April, while for the whole EU, inflation in the same period was up by 1.7%, both largely surpassing the market's expectations, although the encouraging numbers were overshadowed by manufacturing output, as the Markit Manufacturing PMI remained in contraction territory in the same month.

The greenback traded lower at the beginning of the week, as softer-than-expected core PCE inflation exacerbated speculation the Fed was moving closer to a rate cut. But the good stuff came Friday, as the country released the April Nonfarm Payroll report, which showed that the country added 263K new jobs in April, largely surpassing the 185K forecast. The unemployment rate fell to 3.6%, a fresh multi-decade low, although amid a declining Labour Force Participation rate, down to 62.8% vs. the previous 63.0%. Wages were up by 0.2% MoM and by 3.2% YoY, matching March readings and slightly below the market's expectations. The US Markit Non-Manufacturing PMI fell to 55.5 in April, while the official manufacturing index was also softer-than-anticipated by printing 52.8, both playing against the American currency.

The upcoming week will be lighter in terms of macroeconomic releases, although the final versions of European Markit Services PMI and Composite PMI will be out on Monday, alongside the Union's Retail Sales and the Sentix Investor Confidence.

The US has minor data scheduled until Friday when the country will publish April inflation figures. Core annual CPI is forecasted at 2.1% vs. the previous 2.0%. Such an outcome will confirm the Fed's stance and therefore maintain the dollar on the winning side.

EUR/USD technical outlook

Encouraging EU data and speculation that the Fed would be closer to a rate cut sent the EUR/USD pair up to 1.1264 these days, but those gains were fully trimmed ahead of the weekly close, with the pair now hovering around the 23.6% retracement of the latest decline measured between 1.1323 and the yearly low at 1.1110. Marginally up for the week, chances are of further declines ahead.

The weekly chart shows that that the pair continued developing below all of its moving averages, with the 20 SMA crossing below the 200 SMA, while technical indicators remain within negative levels, although lacking clear directional strength.

 Daily basis, the pair made a short-lived attempt of advancing beyond its 20 DMA but settled well below it, with all of the moving averages heading south above the current level. The Momentum indicator has extended its decline to its lowest in almost a month, while the RSI loses downward strength, but stands at around 41, also pointing to another leg lower ahead.

The 1.1110 is the immediate support, ahead of the 1.1040/60 region, followed by the 1.1000 critical figure. A break of this last seems unlikely for the next week. Resistances are at 1.1200, followed by the weekly high at 1.1264 and the 1.1300 price zone, where the pair has a daily descendant trend line coming from September 2018 high.

EUR/USD sentiment poll

The FXStreet Forecast Poll shows that market players expect further declines for next week, with 100% of the polled experts seeing it falling, and with the average target at 1.1091. In the monthly perspective, those that see the pair consolidating are a majority with 39%, with the pair barely seen recovering some ground and at 1.1145. The 3-month  view gets 49% of bulls with the pair seen then above 1.1200. However, seems more a result of the continued decline and oversold conditions, than the speculative interest being ready to put a bottom. As mentioned in previous updates, the 1.1000 level is a key psychological support and investors are not ready to call a break below it.

The Overview chart shows that in the three timeframes under study, moving averages are posting modest bounces, despite most targets remain around or below the current level, somehow, reaffirming the case of a correction due to oversold conditions.

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