EUR/USD Forecast: strong sentiment towards the USD beginning to fade

The American dollar has finally pared gains, but not before reaching a fresh yearly high against its European rival. The EUR/USD pair fell down to 1.0517 last Thursday, but recovered some ground by the end of the week, nothing that can seriously affect the dominant bearish trend. During these last few days, the FOMC Minutes outstood, as it showed that most FED's officials said that it would be “appropriate to raise the target range for the federal funds rate relatively soon.” At this point, financial markets have fully priced in a December hike by a quarter-point, to a range of 0.50% to 0.75%, probably the main reason why dollar's rally stopped.

Still, a bottom in the EUR/USD pair has not been confirmed, and there's still room for another leg lower, particularly if demand for US assets resumes next week, once the US returns for the long Thanksgiving weekend.

From a technical point of view, the daily chart for the pair shows that  technical indicators have turned higher after spending the last two weeks in extreme oversold territory, yet at the same time, they remain far below their mid-lines. The 20 DMA has extended its slide further above the current level, now around 1.0790, while the price has been unable to correct much, as its midway to the 23.6% retracement of its latest daily decline, at 1.0710, the immediate resistance for this upcoming days. Should the price recover beyond it, it has room to extend up to 1.0820/840, the 38.2% retracement of the same decline and a major static resistance. Below 1.0505, December 2015 monthly low, the next logical target is 1.0460, 2015 low, while below this last, the sell-off will likely accelerate, driving the price closer to the 1.0200 figure.

Sentiment towards the common currency remains negative according to the FXStreet Forecast poll, given that 57% of participants are looking for lower lows in the EUR/USD next week. However, sentiment favors a recovery in the longer term, with a modest advantage of bulls in a three-month view, expected then to correct towards the 1.0700 region.

The overstretched rally in the USD/JPY pair is currently attracting selling interest, as sentiment towards the pair is increasingly bearish from now on. The pair reached a high of 113.89 this week, 6 pips short of the 23.6% retracement of the 2011/15 rally, retreating roughly 100 pips afterwards, which supports investors sentiment. For this week, half of the investors polled are bearish, but the percentage grows to 67% in a 1 month view, with the pair then back below 110.00.

As for the GBP/USD, sentiment towards the Sterling remains negative, despite Pound's resilience to give up to dollar's strength. However, investors are more cautious over how far the pair can fall. Levels like 1.1500, considered a month ago, are now out of the table, with 1.2000 looking as a more reasonable floor.