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EUR/USD Forecast for the Week Ahead

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© European Central Bank

The Euro's longer-term uptrend against the Dollar looks to ultimately remain intact despite pair being rangebound in the near-term; a situation that should inform trades this week.

The Euro-to-Dollar exchange rate has been in a strong uptrend ever since the 1.0350 early January 2017 lows, and although it is currently consolidating in a rangebound market, it will probably go higher eventually given the prior trend was up, and is, therefore, more likely to continue.

The monthly charts shows how the pair has moved higher in a steep uptrend until to reached the 200-month moving average (MA) at the start of 2018, and then started to pull-back.

The pull-back is probably only temporary. It is due to the resistance exerted by the large MA - notice how a similar pull-back occured when the pair touched the 50-month MA back in the autumn of 2017.

Moving averages tend to act as obstacles because many investors use them as their primary decision-making tool e.g open trade when price is above 50 MA and close when it is below ect.

Sometimes wholesale reversals occur at the level of MAs but at the moment we don't think that is the case with the 200-month MA and expect the uptrend to resume.

A break above 1.2600 would provide bullish confirmation and a full clearance of the MA. it would probably see the exchange rate rise up to a target at 1.2680 just below the R2 monthly pivot - another barrier to further upside.

Pivots are calculated using the open, high, close, and low of the previous month and provide traders which a short-hand reference for gauging the trend. They are also levels of support and resistance in themselves which attract a lot of short-term selling from traders looking to ride the volatility around them.

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Data and Events to Watch for the Euro

The Euro outlined a volatile rip curl following last week's European Central Bank (ECB) meeting with initial optimism caused by a change in the language of the ECB's official statement soon evaporating after Draghi inferred there would be no haste to exit stimulus in his press conference after.

On Wednesday, March 14 ECB President Mario Draghi is scheduled to speak at 08:00 GMT, if he touches on issues of future monetary policy changes we could see the Euro move. Draghi is to address "The ECB and Its Watchers XIX" conference organised by the Institute for Monetary and Financial Stability in Frankfurt am Main, Germany. We could well get a further insights into the ECB's thinking, so watch the newswires around this time.

Elswhere, keep an eye on the European finance ministers (Eurogroup) on Monday, Tuesday and Wednesday, and news from initial coalition talks in Italy, where the outcome remains decidedly opaque.

"With no one party or indeed coalition winning enough seats for a majority, both the 5* (largest single party) and center-right (largest coalition) are vying for the opportunity to form a government," says Ryan Djajasaputra, analyst at Investec.

Yet with the "seat mathematics" not adding up it could be difficult for either side to form a functioning government.

The fate of the Euro rests on whether the government includes the anti-EU 5 Star party or not. If it does the single currency will be pressured lower on Italexit fears; if not it will rally as the final impediment to a more politically unified outlook will have been removed.

On the hard data front, the main release is probably February inflation data on Friday, March 16, at 10.00 GMT, however, this is the second estimate and therefore unlikely to vary much from the previous flash estimate.

The ZEW sentiment survey is also quite important as a fairly reliable forward indicator of growth which can impact on the Euro and is released at 10.00 on Tuesday morning. In the previous month, it came out at 29.3.


Data and Events to Watch For the Dollar

The most important release for the Dollar in the week ahead is inflation data for February, which is forecast to show a rise of 0.2% month-on-month, for both headline and core when released at 12.30 GMT on Tuesday.

Given the extremely strong labour market data out on Friday, which showed payrolls increasing by 313k in February, expectations are tilted to the upside, since a healthy labour market generally creates greater inflation pressure.

"Unless CPI or retail sales is abysmal, Fed Chair Jerome Powell will deliver his very first rate hike the following week," says Kathy Lien, Managing Director of BK Asset Managment.

A more inflationary result would indicate that the Federal Reserve (Fed) might need to increase interest rates more aggresively than previously expected, and higher interest rates tend to lead to a stronger currency because they attract more foreign capital inflows.

Retail Sales is the other big release in the week ahead when it is scheduled to come out at 12.30, on Wednesday, March 14.

The consensus expectation is for a 0.3% rise month-on-month in February; a higher result would be benificial for the US Dollar and vice versa in the event of a lower print.

Other data in the week ahead includes Empire State and Phillidelphia Fed Manufacturing data, with the former expected to show a rise and the later a fall when they are released on Thursday at 12.30.

Housing and Michigan sentiment data round of the week when they are released on Friday.

The ongoing trade war and Trump's promise to meet Kim Yong-Un are further matters which could rattle markets in the coming week.

The main threat to the Dollar is from retaliatory measures taken by large trade blocks against the US - such as the EU or China since these will hit US exports and therefore direct demand for Dollar denominated goods.

The meeting with Kim is likely to impact on traditional safe-haven currencies like the Yen and the Swiss Franc more than the Dollar, with the greater signs there are of an entente cordial pressuring havens lower versus the Dollar.

Get up to 5% more foreign exchange by using a specialist provider to get closer to the real market rate and avoid the gaping spreads charged by your bank when providing currency. Learn more here.