EUR/USD Forecast: uncertainty rules but faith in the greenback intact
- USD ends the week softer, hurt by inflation, FOMC's speakers, and uncertainty.
- EUR/USD bearish according to sentiment but lower lows out of the table for now.
The EUR/USD pair ends the week on a higher note, but gains were far from being caused by a stronger common currency. The pair started the week falling, but dollar's momentum was offset by hopes of a Brexit deal which boosted high-yielding assets, at least for some 48 hours. All hell broke loose in the UK as the deal, approved by the Cabinet, falls way short of May's promises. Ministers resigned, May's leadership is again being challenged, and fears dominated the board during the second half of the week, yet the greenback got no love from speculative interest, partially undermined by soft US data, as inflation eased in October, with the core CPI confirmed at 2.1% YoY and a mixed Retail Sales report, and partially contained by relief news coming from the UK that helped the Pound bounce over 100 pips from its lows.
Not that things were better in the EU, as German economic growth shrunk by more-than-expected in Q3, coming in at -0.2%. For the whole Union, however, it came as expected at 0.2% QoQ and 1.7% YoY. Business sentiment remained depressed according to the German ZEW Survey, while EU inflation held at 2.2% YoY in October, with the core reading steady at 1.1%.
Anyway, the dollar weakened initially on Brexit hopes, later on soft data, and finally in sour hints coming from US FOMC's officials. The recently appointed Vice Chair Clarida hit the wires this Friday, warning about the increasing downward risk to global growth, also supporting the gradual approach of the Fed on rate hikes, although clarifying neutral has not been reached. Fed's Kaplan also spoke, saying that the increasing debt to GDP ratio has become a tailwind, adding that inflation pressures are building but not running away. ECB's Draghi was optimistic as usual, but in a dollar-weak environment, helped the EUR/USD pair raising. Despite hinting at slower inflation being likely he reiterated that the central bank is determined to end bond purchases by the end of this year.
The dovish tone of a couple Fed's members in a risk-averse environment seems a poor excuse for EUR/USD's recovery. The market is sometimes like this and with all the back and forth in politics, not a surprise. Choppy trading and volatility spikes are still in the table.
The upcoming week will be generally light in terms of macroeconomic data, with the US releasing Durable Goods Orders and Markit presenting preliminary November PMI for both economies next Friday.
EUR/USD technical outlook
The EUR/USD pair weekly chart shows that after hitting a fresh 2018 low of 1.1215 and piercing a bearish 200 SMA, it finally set above this last, holding anyway far below the 20 and 100 SMA, and with the shortest crossing below the larger one at around 1.1550. The Momentum indicator in the mentioned chart aims north right below its mid-line, but the RSI continues lacking directional strength at around 39, keeping the upward potential limited.
Daily basis, the pair has chances of continue advancing if it closes the week at current levels or higher, as the price has broken above a bearish 20 SMA, battling with the 61.8% retracement of the latest decline and with technical indicators advancing, the Momentum already within positive levels and the RSI pressuring its mid-line. Still, any advance will remain corrective as long as the pair remains below the 1.1600 price zone.
The immediate resistance is 1.1460, a strong long-term static level, ahead of the mentioned 1.1550, while supports come at 1.1300 and the yearly low at 1.1215. No relevant breakout is expected for next week.
EUR/USD sentiment poll
The FXStreet Forecast Poll shows that, despite its weekly decline, faith in the dollar persists, with bears dominating the weekly and the monthly perspectives. The pair turns neutral, however, in the 3-month view. Short-term the number of bears decreased to 64% from 67%, with the average target downgraded from 1.1342 to 1.1328. Things are a bit more "dramatic" in the monthly perspective, with 57% of bears and an average target of 1.1338, this last, down from 1.1428.
The Overview chart shows modest bounces in moving averages for the 1-week and 1month views, rather suggesting consolidation than a near bottom. The longer-term view shows a wide range of possible targets, usually a sign of uncertainty, although the largest accumulation of possible targets is above the current level.
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Author
Valeria Bednarik
FXStreet
Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.
