EUR/USD Forecast: corrective recovery doesn't grant more EUR gains
|- EUR/USD could advance next week, but sentiment still skewed to the downside.
- The greenback eased on poor data and uncertainty about the upcoming foreign policies.
The common currency managed to recover some ground and close the week in positive territory against its American rival, ending the week above the 1.1600 figure after extending its yearly decline by a couple of pips, to 1.1507.
Risk aversion triggered by the increased possibility of a global trade war was the main theme of the week. On Monday, US President Trump ordered trade officials to draw up a list of $200 billion worth of Chinese goods to hit with 10% tariff, to which China responded announcing the implementation of new tariffs on US goods, as the unpredictable US behavior needs strong responses. On Wednesday, the EU announced tariffs of 25% on $3.2B worth of US goods in retaliation, which came into effect this Friday, while the Turkish government joined the retaliation train on Thursday by imposing tariffs of $266.5 million on $1.1 billion worth of US goods.
Fears eased modestly by the end of the week, following some headlines indicating that White House officials are trying to restart talks with China to prevent the trade war from escalating further, while the greenback changed course, reversing its safe-haven condition to become a riskier asset, after Thursday's equities slump and soft local data.
The American currency remained under pressure on Friday, helping the pair bounce, also helped by profit-taking ahead of the weekend amid the uncertainty related to US foreign policies.
Sentiment not only affected the USD. In the EU, news that Italy appointed Alberto Bagnai as Senate Finance Committee head, a well known eurosceptic, weighed on the common currency, although on Friday, Greece's creditors struck a deal to ease the country's repayment terms, with much of the 96 billion owed will be pushed back by 10 years, in order to help the troubled country recover its economic health.
In the data front, the week has been quite dull with no first-tier figures being released. By the end of the week, Markit preliminary June PMI showed that the EU slowdown from record activity may have come to an end, stabilizing in expansionary territory. The services index for the EU came at 55.0 vs. the previous 53.8. The Manufacturing index marched market's expectations with 55.0 but was below the previous 55.5. The EU composite index resulted in 54.8 beating expectations and the highest in two months. US PMI are expected to show a better performance in Manufacturing than in Services, with the Composite figure expected at 55.1 from the previous 56.6. In the US, manufacturing growth slowed to 54.6 from the previous 56.4, but the services sector picked up, with the index at 56.0 vs. the expected 55.1, still below the previous 56.6. The Composite index came in at 56.5, better than the expected 56.4 but below the previous 56.8.
The EUR/USD pair recovery has not much fundamental background, beyond increasing distrust on the USD. Yet at the end of the day, the imbalance between central banks will likely weigh more, moreover if the US backs with the latest menaces on tariffs.
EUR/USD technical outlook
The upward corrective movement has stalled short of any relevant resistance level, at the common currency is still at risk of falling further, unable to recover after the latest ECB's dovish stance which highlighted the imbalances between monetary policies with the Fed. Technical readings in the weekly chart lean the scale toward the downside, as indicators hold near well into negative territory, although the bearish strength has eased. In the same chart, the 20 SMA maintains a strong bearish slope but to far above the current level to be relevant. The same chart also shows that the price is far below the 23.6% retracement of it April/May slump at around 1.1720, and at the lower end of the previous week's range.
In the daily chart, the 20 DMA capped the upside this Friday, while the 100 DMA nears to cross below the 200 DMA, both in the 1.2050 region. The Momentum indicator in the mentioned chart maintains its bearish slope within negative territory, while the RSI barely recovered within bearish levels, a sign that bulls are still hesitating. Chances of further recoveries are quite limited, particularly if the mentioned 1.1720 level remains untouched. A weekly close below the 1.1600 figure should favor fresh lows for the upcoming one, with 1.1510 and 1.1420 as the next strong support levels.
EUR/USD sentiment poll
The FXStreet Forecast Sentiment Poll shows that the USD is the most favored currency for the upcoming week, although with the EUR being an exception, as sentiment is mild bullish for the pair, seen however averaging 1.1720 next week, with bulls up to 53% from the previous 35%. Despite keeping the lead, the positive sentiment seems to dilute in time, with bulls accounting for a 46% in the three-month view, down from the previous 49%. The average target in this last time frame has suffered little change, with the pair still seen well below the 1.2000 mark. The Overview chart presents a bearish trend that is clearer as time went by, as despite the unchanged average target in the quarterly view, the largest accumulation of possible objectives stands around 1.1500.
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