EUR/USD Forecast: sentiment clashes with spot´s direction

The common currency remained on demand at the beginning of the week, mostly backed by broad dollar's weakness, following last week's awful US NFP report, with the pair up to 1.1879, its highest in two weeks. The pair lost upward traction on Thursday, amid key comments from ECB's head Mario Draghi, who pledged to keep rates at current, record-low levels "well past" the end of its bond-buying programme.   

The news take the EUR/USD down from its weekly high of 1.1879 achieved on relief headlines coming from Spain. The Catalan President, Carles Puigdemont, suspended the independence declaration late Tuesday, opening for dialogue before taking a new step. Afterwards, Spanish authorities request Puigdemont to confirm whether he declared the Independence or not, as an affirmative answer can lead to the application of the Art. 14 of the Spanish Constitution, which will pretty much dismantle the autonomic government of Catalonia. An answer should be announced not later than 8:00 GMT this Tuesday.

 Key growth US numbers released on Friday came below market's expectations, putting the greenback once again under selling pressure by the end of the week. Inflation in the country, despite posting the biggest increase in eight months, was below market's expectations, and still below the Fed's 2% target.

Political factors rather than macroeconomic data have been the main market motor these last weeks, and will probably remain so over the next ones, but that doesn't mean investors will ignore macro headlines.

The next week will present a fulfilled macroeconomic calendar all through major economies including the German ZEW confidence survey for October, and EU September inflation among the most relevant for the Euro area, and housing figures and Fed's speakers for the US. Another key factor that can affect the pair is Catalonia's answer to the Spanish central government over the independence statement.

Technically, the daily chart shows that the pair kept regaining ground after bottoming late September at 1.1669, and after meeting buying interest around a bullish 100 DMA. Additionally, a brief decline below the 23.6% retracement of the April/September rally was quickly reverted, with the pair settling also above its 20 DMA mid-week. Technical indicators entered bullish territory, an while the RSI is pretty much directionless, the Momentum heads north, all of which supports additional gains ahead.

Weekly basis, the pair remained above the 200 SMA regaining the upside after pressuring for three-week in-a-row, with the 20 SMA approaching from below and strongly bullish, and technical indicators resuming their advances within positive territory after correcting extreme overbought conditions, a sign that the dominant bullish trend is still alive.

For the upcoming days, the pair would need to extend beyond the 1.1930 level to be able to gather enough upward momentum to test the 1.2000 level, whilst beyond this last, fresh yearly highs come back to the table, with the market them aiming to 1.2101, January 2015 monthly high. The pair has an immediate support around 1.1750, and a more relevant one around 1.1660, where it bottomed in August and September.  Seems unlikely that the greenback will gather enough momentum to break below the level these upcoming days.

he FXStreet Forecast Poll shows that the positive sentiment towards the greenback seen last week deteriorated quickly, and while the market doesn't dare to  bet much on rivals´ gains, its surely not ready to jump into the dollar. For the EUR/USD the number of bears on weekly basis, reduced from 83% to 47%, indicating that sentiment is now neutral. In the longer perspective, bears increased from 26% to 41%, but the average target is now higher, at 1.1912, from previous 1.1785. For the 3-month view, the target's range remains wide reflecting uncertainty of market participants' view.

1 Week
Avg Forecast 1.1792
100.0%94.0%47.0%04550556065707580859095100105
  • 47% Bullish
  • 47% Bearish
  • 6% Sideways
Bias Neutral
1 Month
Avg Forecast 1.1827
100.0%87.0%40.0%0405060708090100
  • 40% Bullish
  • 47% Bearish
  • 13% Sideways
Bias Bearish
1 Quarter
Avg Forecast 1.1912
100.0%82.0%41.0%0405060708090100
  • 41% Bullish
  • 41% Bearish
  • 18% Sideways
Bias Neutral

Despite the Sterling has kept running higher, sentiment towards the UK currency remains negative. Bears are still a majority in all the time frames under study, yet the average target, has been upgraded by average 200 pips on each, indicating that the market is irrationally bearish, ignoring spot movements. The overview chart shows that sentiment improved slightly from last week, but it's still against a firmer bullish run.

1 Week
Avg Forecast 1.3258
100.0%93.0%43.0%0405060708090100
  • 43% Bullish
  • 50% Bearish
  • 7% Sideways
Bias Bearish
1 Month
Avg Forecast 1.3207
100.0%83.0%25.0%02030405060708090100
  • 25% Bullish
  • 58% Bearish
  • 17% Sideways
Bias Bearish
1 Quarter
Avg Forecast 1.3135
100.0%79.0%26.0%02030405060708090100
  • 26% Bullish
  • 53% Bearish
  • 21% Sideways
Bias Bearish

For the USD/JPY pair, bulls are still leading, although in the 1-month view, they lose ground to bears. The pair is pretty much seen unchanged in the 111.00/113.00 region on average, although in the longer run, and according to the overview chart, there's a cluster hurdle in the 114.00 region.

1 Week
Avg Forecast 112.25
100.0%87.0%47.0%04550556065707580859095100105
  • 47% Bullish
  • 40% Bearish
  • 13% Sideways
Bias Bullish
1 Month
Avg Forecast 111.66
100.0%93.0%40.0%0405060708090100
  • 40% Bullish
  • 53% Bearish
  • 7% Sideways
Bias Bearish
1 Quarter
Avg Forecast 112.71
100.0%81.0%57.0%0556065707580859095100
  • 57% Bullish
  • 24% Bearish
  • 19% Sideways
Bias Bullish

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