EUR/USD Forecast: the Fed will pull the trigger. So what?

The dollar stands victorious against its European rival for a second consecutive week, up ever since the week was marked by political enthusiasm, with the greenback gapping higher against most of its rivals on Monday, on news the US Senate passed the overhaul of the tax reform bill, a significant step toward approving the law. As the days went through, the absence of a better catalyst to boost the common currency kept the EUR/USD under pressure.

Additional dollar demand came after the US Congress approved a stopgap bill to avert a government shutdown temporarily, until December 22nd. Honestly, a government shutdown after the many seen over the last decades is the less of the concerns for dollar's bulls.

The US Nonfarm Payroll report just released showed that the economy added 228,000 new jobs in November, above expected, but also that the previous month's figure suffered a downward revision, from  261K t0 244K. The unemployment rate unchanged at 4.1%, while wages grew above previous, but below expected. MoM, average hourly earnings surged by 0.2%, and by 2.5% from a year earlier. This last is a major drag for inflation and could affect the pace of rate hikes in 2018.

And here comes the Fed

The US  Federal Reserve is almost certain to raise interest rates next Wednesday,  and the market has long ago priced that in. What investors will be looking for this time, are clues to what will happen in 2018. "Mysteriously" low inflation has been Yellen's nightmare this year, and speculation gyrates about the Fed not being able to pull the trigger three times next 2018, as expected. The September dot plot showed that policymakers mostly believe that three rate hikes will be provided next year, but the terminal rate was lowered to 2.8% from 3.0% in the previous meeting.

There's an additional factor that the market still can't price in,  Jerome Powell. This is the latest Janet Yellen live meeting, with Mr. Powell set to take the lead next February. While the market largely anticipates he will follow the same path, it will surely add to Fed's uncertainty after the market digests whatever happens this Wednesday.

… and also the ECB

The European Central Bank is also set to scheduled this next week, but Draghi and Co. are not expected to bring anything new to the table, after they provided a dovish QE reduction, cutting its monthly bond-purchases by half, but extending it in time. If something, the ECB will try to down-talk the EUR.

With the rate hike priced in, it would be future moves what actually move the EUR/USD pair. Anyway and from a technical point of view, the risk has inclined toward the downside according to the weekly chart, as the pair settled below its 20 SMA, while the Momentum indicator entered bearish territory where it actually consolidates, while the RSI indicator heads lower, but around 55. In the daily chart, however, the potential downward is stronger, with the price below its 20 and 100 SMAs and indicators heading south almost vertically within negative territory. More relevant, the pair broke below the 61.8% retracement of its late November bullish run the main resistance now at 1.1800. If somehow the pair manages to recover above it, the next stop will be the 1.1860/70 region, en route to 1.1930.  The main support, on the other hand, is 1.1712, November 21st low, with a break below it exposing 1.1660 and 1.1600.

Sentiment towards the greenback sees a major improvement according to the FXStreet Forecast Poll, seen rising this next week against most of its major rivals, Pound included. In the case of the EUR/USD pair, 79% of the polled experts go for a decline, with the average target at 1.1686, compared to just 32% the previous week, and when the average target was 1.1917. That said, uncertainty kicks in afterwards as a monthly and quarterly basis, sentiment turns neutral, with even bulls and bears, but the pair holding below 1.1800. Taking a look at the Overview chart, however, there's still a large number of investors hoping for a 1.2000 quarterly basis, although the number of those looking for lower targets has increased.