EUR/USD Forecast: USD the cleanest dirty shirt in the laundry basket

• 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.