EUR/USD Forecast: too soon to talk reversal

The EUR/USD pair is ending the week lower around 1.1740, after advancing for the previous five, and having put in place a three-week low of 1.1661. Taking just that into account, one may think that the pair has put a top into place and that chances favor additional declines ahead, but things are never that simple.

Volatility was high, with both currencies mostly affected by fundamental headlines rather than actual data, coming from their respective central banks, which released the minutes of their latest monetary policy meetings.

The US Federal Reserve document showed that policymakers are split over what's next for rates, showing additionally some clear signs of concern over soft inflation. The FOMC reiterated its willingness to reduce its balance sheet on "an upcoming meeting." lower inflation readings have cooled down the case for another rate hike this year, with odds now around 50% in favor of one move in December, something that these days, has more chances to change to the worst, as inflation gives no signs of picking up.

In the EU, headlines indicating that ECB's President, Mario Draghi, won't make comments on monetary policy during the upcoming Jackson Hole Symposium hit the common currency, were followed by the release of the ECB's account of monetary policy, which showed officials are concerned over the EUR's strength, particularly in the FX market, as a strong currency would undermine the central bank efforts to restore price stability. 

By the end of the week, risk aversion took over the financial world, not only because new terror attacks in Europe, but also amid US President Trump latest scandal. This time, a tepid response to the past weekend nationalist attack in the country, ended up with the dissolution of the Manufacturing Council & Strategy & Policy Forum, two councils formed by independent businessmen meant to advice the president. Fears that President Trump will keep spooking his best advisors and with this scandals clearly interrupting the economic agenda, weighed on the greenback.

Therefore, beyond the technical fact that the pair kept retreating from its yearly high, the common currency still has chances of regaining the upside and rallying further, as looking at all the market, love for the dollar is still absent.

From a technical point of view, the daily chart shows that the pair broke below its 20 DMA at the beginning of the week, and was unable to regain ground above it afterwards, whilst the Momentum indicator maintains a strong bearish slope within negative territory. The RSI indicator, however, is holding around neutral territory, aiming modestly higher and limiting the possibility of a downward move. In the weekly chart, the pair remains stuck around its 200 SMA, the 20 SMA advanced below the current level and above the 100 SMA, while technical indicators continue consolidating within overbought territory, far from indicating the pair would retreat further.

For these upcoming days, the mentioned low at 1.1660 is the immediate support, followed by the daily ascendant trend line coming from 1.0602, around 1.1600. Below it, the downward corrective movement could extend down to the critical 1.1460 long term support. To the upside, the 1.1820/30 area is key as it contained advances during the last few days. Above it, the pair has scope to retest the year high at 1.1909, while beyond it, the 1.2000 threshold comes next.

The weekly FXStreet Forecast Poll shows that the greenback is expected to remain under pressure next week, finding some favor only against weakened GBP and AUD. The average targets however, are within this past week's range, clearly reflecting that market believes on their weakness and not on dollar's strength.

For the EUR/USD pair, the number of bulls decreased from 62% to 54% while the average target now aims for 1.1778, with quite a mixed stand, but with the pair seen mostly holding above 1.1600 and up to 1.2100. In the three month view, the number of bears surged from 59% to 68%, but with the pair seen then around 1.1565, a result of the deteriorate trust in US policies and future.

 Sentiment towards the Pound is negative, and will remain so for the next month, weighed by softening inflation denting the case for a rate hike in the UK this year. In the three-month view, sentiment is quite mixed, but bulls take the lead by little, up to 36% from 18%, reflecting speculative interest's hopes of a clearer picture on rates, and Brexit.

Bears lead the USD/JPY in the short term, seen average around 109.00 and with 46% of the polled investors looking for a slide, but with the picture reversing in the longer run, as bulls dominate the monthly and quarterly perspectives. The number of longs for the three-month view increased from 67% to 76%, but the average target remains a handful of pips below 112.00. 

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