EUR/USD Forecast: higher highs in play

Much has been said this week on ECB's putting an end to QE, even that Draghi will pull something out of his sleeve next August, when he will attend the Jackson Hole meeting in the US, set to speak there for the first time in three years. But it was dollar's self-weakness what led the EUR/USD pair to a fresh 2017 high of 1.1489, fueled by a softer-than-expected Fed's Yellen and another round of disappointing inflation figures.

The Fed's Chair spoke on the semi-annual testimony before the Congress earlier this week, confirming that the Central Bank still plans to gradually raise interest rates and reduce its balance sheet, though she did not share many details on the second, while adding that not much more rate hikes are required to reach "normal." Local stocks rallied to record highs on the news, as a more cautious approach from policy makers  fueled appetite for riskier assets.

US inflation and retail sales released this Friday seem to have seal dollar's destiny, at least until the next market catalyst, as both came in below expected, reinforcing the idea that the Fed will have to slow its pace of tightening. US CPI remained flat in June, advancing by 1.6% from a year earlier, while Retail Sales fell by 0.2% in the same month, a second consecutive monthly decline. The preliminary US Michigan Consumer sentiment index for July  came in at 93.1 from previous 95.1, its lowest in nine months.

The pair is still unable to break beyond the current 1.1460 region, a major long-term resistance, but retracements from the level have been shallow, with buyers defending the 1.1300 level. Weekly basis, the upward momentum seen on previous updates persists, as technical indicators continue heading north, despite at overbought levels, while the 20 SMA is about to cross above the 100 SMA, both now around 1.1000.

Daily basis, the 20 DMA has accelerated below the current level, while the Momentum indicator corrected overbought conditions, having lost bearish strength above its 100 level, whilst the RSI indicator resumed its advance, currently at 62, leaning the scale towards the upside.

On the very few occasions that the pair rallied beyond the 1.1460 region this last two years, it posted two relevant highs: 1.1615 on May 2016 and 1.1713 on August 2015, the probable bullish targets for this week on a break below 1.1500. The immediate support is the 1.1370/80 region, where the pair met buyers this week, followed by June 28th low at 1.1290. Only below this last an interim bottom could be confirmed and anticipate additional declines ahead.

Investors are still unwilling to bet against the greenback, particularly in the longer run, but the FXStreet Forecast Poll shows a decreasing number of dollar bulls. For the EUR/USD pair, bears are 55% for the weekly outlook, down from 67% the previous one, and with an average price target of 1.1438, pretty much the same level. For the three-month outlook, bears are 70%, mostly banks and with 1.1240 being the average level, up from previous 1.1153.

In the case of the GBP/USD the negative sentiment is stronger in the longer term,  mostly due to the uncertainty surrounding the Brexit and local political jitters. For the upcoming week, the pair is mostly seen hovering around the 1.3000 level, with the most pessimistic forecaster pointing to 1.2760 and the most optimistic to 1.3200. In the quarterly view, almost none of the experts sees the pair at 1.3000 or beyond.

The case of the USD/JPY pair is a clear reflection of market thinking these days, that is that investors are not sure on what to do  next: the pair is seen averaging 113.00 in the next three months, despite bulls are a majority in the three cases under study. Bears are a few, and only a couple of banks believe that the pair can lose the 110.00 level in three months. 

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