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EUR/USD Forecast: dollar’s bulls bend but don’t break

The EUR/USD pair is up for a fourth consecutive week, although gains now seem a bit more sustainable than on the previous ones, when the pair barely added some pips. After starting the year posting a fresh 14-year record low of 1.0340, the pair is now some 300 pips higher, as speculative interest realized that confidence on US future has been taken too far, too fast. Following a less hawkish FED and a soft employment report during the first week of the  year, the US offered this one the first press conference of upcoming President Donald Trump, which was, to said the least, the disappointing for financial markets.

Trump failed to provide clearness over his tax reforms or infrastructure investment ideas, focusing mostly on his continued battle with the media. Anyway, he reaffirmed the construction of a wall between Mexico and the US, his plans to get rid of the Obamacare plan, while reiterated is menaces to the industry, taking it with automakers and pharmaceuticals. Indeed, not what the market needs to reaffirm its confidence in the US future.

Nevertheless, the common currency retains its self-weakness, with political risk in the region, alongside with Central Banks’ imbalance, probably preventing it from appreciating much.

From a technical point of view, the pair remains below 1.0710, the 38.2% retracement of the 1.1299/1.0340 slide, although in the weekly chart, technical indicators are bouncing from oversold territory, supporting the ongoing upward corrective move. The price however, remains far below its moving averages in the mentioned time frame, with the nearest being a bearish 20 DMA at 1.0840.

In the daily chart, technical indicators have turned modestly lower, losing their bullish strength, but so far holding within positive territory, whilst a bullish 20 SMA continues advancing below the current level. The key support is now the 1.0565 region, the 23.6% retracement of the mentioned decline, with a break below it favoring a downward extension towards the 1.0440/60 region, which will support a retest of the multi-year low later, en route to the 1.0200 region.

A recovery beyond 1.0710 on the other hand, should favor additional gains, towards 1.0800/40, where the pair presents multiple daily lows between 2015 and 2016.

Sentiment goes alongside with technicals, as the FXStreet Forecast poll sees the pair extending its upward corrective movement next week, with bulls accounting a 60%, but the long term bearish expectations firm in place, as bears dominate the 1 month, and 3 months views, with the pair seen below 1.0400 by the end of the quarter

 

This past week’s behavior of the GBP/USD pair has made it clear that bears are still in the driver’s seat, and that upward movements are seen as selling opportunities. As Brexit looms, attention will center in the upcoming statement next Tuesday from PM Theresa May, who will outline her plans on how to exit the EU. Sentiment is mixed around the pair, with bullish and bearish neck-to-neck in the weekly and the 3-month perspective, albeit the average forecast sees the pair close to 1.200 and well below the 1.2500 level, now seen as a line in the sand for the current bearish momentum.

As for the USD/JPY pair, it seems that it has found an  interim bottom around 114.00, as bearish sentiment eases  as time goes by: bears stand for the 50% for this week, but represent just 15% in a three-month view, with the pair seen then approaching steadily to the 120.00 threshold.

 

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