The Euro-to-Dollar Rate in the Week Ahead: Rangebound With No Clear Bias

- EUR/USD's trend remains unclear

- Break below 1.1589 could be key for resumption of downtrend

- Main release for the Euro is trade data; for the US Dollar Fed chairman Powell's
testimony takes centre stage

The Euro is in an indeterminate trend against the Dollar at the moment with little clear bias one way or another, according to our analysis. The neutral situation is reflected in the rangebound exchange rate and its position in relation to the 50-month moving average (MA):

EUR/USD has fallen to the level of the 50-month MA and stalled; major MAs often act as obstacles to the trend and the 50-month was no exception, cutting the short-term downtrend short in May.

MA's can also be the sight of trend reversals and although EUR/USD has risen up to 1.1800 already, there is as yet still insufficient evidence to confirm a reversal.

It is still possible that the Euro could move lower again.

The daily chart shows how the exchange rate rose up from the 1.1507 lows at the end of June to a  high of 1.1790 at the start of July, yet the uptrend was cruelly cut short after meeting the 50-day MA and has since been selling off, falling back down to 1.1700.

Even the 4hr chart is showing mixed signals, with the short-term trend bearish but the last three periods forming a bullish three white soldiers Japanese candlestick pattern which suggests risks of a bullish reversal.

Yet despite our neutral stance an analysis using Elliot waves suggest a resumption of the down-trend lower, eventually.

The pair could be pulling back before going lower and is likely to plumb new depths, according to broker LiteForex, further details of their view can be found in this article.

LiteForex said the current move might peak at 1.1850 before going down in the next Elliot wave (wave 5) to a target between 1.1439 – 1.1320.

Confirmation that the next move lower had started would come from a break below 1.1589.

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What to watch in the week ahead for the Euro

The week ahead for the Euro promises to be fairly quiet as the main release is a revision of June CPI data which is unlikely to be markedly different from the initial estimate, and therefore unlikely to rock markets.

The other major releases for the Euro is the Trade Balance in May, which is forecast to show a rise in the surplus to 20.9bn from 16.3bn Euros previously, when it is released at 9.00 (GMT), on Monday the 16th.

The current account balance for May is released on Friday at 8.00. In April it stood at 26.2bn Euros and the high surplus is considered one of the reasons given by Euro-bulls for the currency to continue strengthening.

What to Watch in the Week Ahead for the Dollar

The main event in the week ahead for the Dollar is probably the semi-annual testimony of Federal Reserve (Fed) Chairman Powell before Congress on Tuesday at 14.00 GMT.

Powell will be asked for an update on the economy and his view of where monetary policy is headed. Lawmakers may also ask for an update on the potential impact of Trump's aggressive approach to diplomacy and tariffs, and his stimulative tax cuts. All these issues are pertinent to the Dollar.

The US appears to be undergoing a period of rapid growth which is propelling the US Dollar higher too. It is possible that Powell may say the Fed is adjusting its stance in light of these changes - meaning it could be entertaining an even more aggressive approach to policy and higher interest rates.

If that is the case, Powell's testimony may fuel even more US Dollar strength, as expectations of higher interest rates appreciate currencies by attracting greater inflows of foreign capital, drawn by the promise of higher returns. Although the Fed is already expected to raise rates at a rate of 0.25% per quarter in this year and the next, they are forecast to peak at only 3.5% - if Powell is more bullish, however, this end rate or 'terminal' rate as it is known may also be revised up, and this is likely to drive the Dollar higher too.  

Alternatively, Powell may decide to focus on the downside risks of the current trade war on US growth and this would push the Dollar down instead.

"A bigger risk for the greenback is likely to be Fed Chairman Jerome Powell’s testimony before Congress on Tuesday, where he will give his latest monetary policy assessment to US lawmakers. Investors will be watching if the Fed is becoming concerned about overshooting its inflation target and whether the central bank is worried about the impact of the escalating trade tensions on the US economy," says a note from Actionforex on the matter.

Analysts at global investment bank TD Securities expect Powell to simply reiterate the Fed's current 'gradualist' line.

"We expect him to reiterate the case for gradual hikes on the back of a tight labour market but contained inflation. We focus on any comments on trade protectionism and the yield curve along with operational procedures," say TD Securities.

The other main release for the US Dollar is retail sales on Monday at 12.30 GMT, which is forecast to come out at 0.5% in June from the 0.8% rise registered in May. Retail sales Ex Autos is expected to rise 0.4% from 0.9% previously.

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