• The shared currency collapsed amid Markit PMI pointing to economic contraction.
  • Sentiment favors EUR gains coming in the next few weeks, but growth data says differently.

Horrid European data smashed EUR bulls´ hopes by the end of the week, with the EUR/USD pair set to finish it sub-1.1300 after peaking at 1.1447 mid-week, its highest for this March. The dollar was under pressure ever since the week started, as soft US data pointed to a dovish outcome of the Fed's meeting. Despite the sour previsions, Powell & Co. were far more dovish than anticipated, the reason behind the monthly peak in the pair.

US policymakers decided to maintain rates unchanged, which was not a surprise. The first shock came from the dot-plot, as 11 out of the 16 voting members don't expect a rate hike for this year. In fact, the central bank's previsions have boosted odds for a rate cut, with the Fed funds rate downgraded to 2.4%. Funds rates are currently at 2.25-2.50%. The market now sees a 39% probability of a rate cut by the end of the year and a 50% chance for January 2020. Powell added that current data is not providing signals on which direction the rate should move.

Powell reiterated that the economy is in good shape, but speculative interest is not that convinced, given the strain of tepid data released ever since the year started. The statement mentioned "muted inflationary pressures," and growing uncertainty correlated to China and EU economic slowdown, and Brexit chaos. The central bank also announced the end of quantitative tightening, announcing they will keep reducing the balance sheet until September, at a $15 billion pace beginning in May 2019, down from the current $30 billion.

The dollar sunk against all major rivals with the announcement but didn't take long to trim such losses and even advance beyond pre-Fed levels, in a mixture of soft European data, escalating Brexit chaos and a strong recovery in Wall Street.

The common currency collapsed Friday with the release of March preliminary Markit PMI, which showed that activity in the region contracted sharply. The German manufacturing index fell to 44.7 a 79-month low, while the services one printed 54.9 the lowest in two months. For the whole Union, the Manufacturing PMI resulted at 47.7, a 71-month low, while for the services area, the index resulted at 51.3, its lowest in 2-month. According to the official report, new order growth stagnated for a second consecutive month, while employment growth slowed, down to the joint-weakest since September 2016. As said before, the economic growth downturn in the Union will reject EUR's attempt to post solid gains, even in the case of dismal USD-related news.

Mixed US data released this Friday ended up favoring the greenback, as despite the Markit preliminary March PMI missed expectations, they remained in expansionary territory, confirming the theory that, while the US economy is not strong enough, is in far better good shape that the Union's one. The Manufacturing Index resulted at 52.5 while the Services one printed 54.8. The positive surprise came from Existing Home Sales up by 11.8% in February, largely surpassing expectations of 2.2%

The upcoming week's macroeconomic calendar will be quite busy, although the most relevant releases scheduled are US Q4 GDP and German March inflation on Thursday, and January US core PCE inflation on Friday. This last may have a limited effect on the greenback, as it is a delayed release, and the latest Fed's announcement has already set the central bank's course for the upcoming months.

EUR/USD technical outlook

The pair is now around the 61.8% retracement of the 1.1175/1.1447 rally at 1.1280, and the weekly chart shows that a neutral-to-bearish stance prevails, given that the pair was unable to settle above any moving average. The 20 SMA maintains a mil bearish slope and is about to cross below the 200 SMA, this last at around 1.1340, where the pair also has the 38.2% retracement of the mentioned rally. Technical indicators in the mentioned chart continue lacking directional strength, the Momentum around its mid-line and the RSI currently at 43.

In the daily chart, the bearish case is stronger, as the pair broke this Friday below the 20 and 100 DMA, with the shortest slowly turning south. The 200 DMA maintains a strong downward slope at around 1.1480. Technical indicators in this last time-frame have entered negative ground with strong bearish slopes, supporting a bearish continuation particularly if the pair loses the mentioned 1.1280 support. The next one, in that case, is 1.1175 the yearly low, en route to 1.1120. Resistances for the upcoming days come at 1.1330, 1.1400 and the 1.1440/60 price zone. This area is a line in the sand, and as long as EU growth concerns prevail, bulls won't be able to take it out.

EUR/USD sentiment poll

The FXStreet Forecast Poll is confirmed what was discussed last week, that is, that the market is not ready for a bearish breakout of the 1.1000 level, as bulls are a majority in the three timeframes under study, yet possible targets average sub-1.1400 levels. In the weekly case, bulls are at 54% with no little change in the price, seen steady around 1.1300. In the monthly view, the number of those longing for gains decreases to 44%, with the average objective at 1.1320. Bulls are a more relevant majority in the quarterly view, up to 62% of the polled experts and with an average target closer to 1.1400.

The Overview chart sees the moving average in 1-week and 1-month maintaining their bearish slopes in line with the dominant trend, while in the longer run, the MA turned neutral, with a large accumulation of possible targets just above the current level.

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended Content


Recommended Content

Editors’ Picks

EUR/USD edges lower toward 1.0700 post-US PCE

EUR/USD edges lower toward 1.0700 post-US PCE

EUR/USD stays under modest bearish pressure but manages to hold above 1.0700 in the American session on Friday. The US Dollar (USD) gathers strength against its rivals after the stronger-than-forecast PCE inflation data, not allowing the pair to gain traction.

EUR/USD News

GBP/USD retreats to 1.2500 on renewed USD strength

GBP/USD retreats to 1.2500 on renewed USD strength

GBP/USD lost its traction and turned negative on the day near 1.2500. Following the stronger-than-expected PCE inflation readings from the US, the USD stays resilient and makes it difficult for the pair to gather recovery momentum.

GBP/USD News

Gold struggles to hold above $2,350 following US inflation

Gold struggles to hold above $2,350 following US inflation

Gold turned south and declined toward $2,340, erasing a large portion of its daily gains, as the USD benefited from PCE inflation data. The benchmark 10-year US yield, however, stays in negative territory and helps XAU/USD limit its losses. 

Gold News

Bitcoin Weekly Forecast: BTC’s next breakout could propel it to $80,000 Premium

Bitcoin Weekly Forecast: BTC’s next breakout could propel it to $80,000

Bitcoin’s recent price consolidation could be nearing its end as technical indicators and on-chain metrics suggest a potential upward breakout. However, this move would not be straightforward and could punish impatient investors. 

Read more

Week ahead – Hawkish risk as Fed and NFP on tap, Eurozone data eyed too

Week ahead – Hawkish risk as Fed and NFP on tap, Eurozone data eyed too

Fed meets on Wednesday as US inflation stays elevated. Will Friday’s jobs report bring relief or more angst for the markets? Eurozone flash GDP and CPI numbers in focus for the Euro.

Read more

Majors

Cryptocurrencies

Signatures