Euro Crisis Worsening - what’s next for EUR/USD?

Last Week Market Wrap

• The European Commission cut its forecast for the Euro zone’s economic growth for 2019 and 2020 mainly due to global trade tensions.
• The EC also revised down its inflation estimates for 2020 which means the European Central Bank will likely not raise interest rates in 2019.
• The European Commission cut its forecasts for Italy’s economic growth for 2019 and 2020 mainly attributed to higher borrowing costs.
• The Italian GDP forecasts for 2019 and 2020 is expected to be slowing GDP for 2019 is likely only grow 0.2%, and for 2020, it is likely to grow only by 0.8 percent.
• The European Central Bank said that investments by companies are expected to slow down due to weaker global growth and trade tensions.
• EUR/USD remains on a bearish trajectory based on the most recent fundamental data.

This Week

• US CPI data will be announced on Thursday. Inflation likely eased to 2.1 percent on an annual basis, helping to justify the Federal Reserve’s pause in its interest-rate hike cycle.
• On Thursday, Germany’s Preliminary quarterly GDP will be released and may have a possible impact on EUR/USD. GDP slipped 0.2% in the third quarter, shy of the estimate of -0.1%. The indicator is expected to rebound in Q4, with a gain of 0.1%.
• US Retail Sales will be out on Friday. This is for December retail-sales figures and has been delayed for a month due to the partial government shutdown. Economists think retail-sales growth decelerated in December.
• US PPI data will be released this Friday. Factory production increased in December. This could be due to higher US consumer demand. However, economists expect output should also grow in January, but at a weaker pace than in December.

More Downside Possible for the EUR/USD

The European Commission released a negative outlook for Europe’s economy last week, confirming growing fears about the health of Europe’s economy.

On Thursday, the European Commission cut its forecast for 2019 eurozone growth to 1.3% in 2019, compared with the 1.9% expected in November. This is attributed to the weaker forecast of industrial and manufacturing data for the euro zone’s biggest economy Germany.

According to the European Commission report, Italy’s GDP will only grow by 0.2% in 2019. Italy is the eurozone’s third-largest economy, but the health of Italy’s financial situation is a big concern. Italian officials have also proposed a budget that breached EU budget guidelines late last year, proposing a 2.4% deficit. This further adds to the concerns about Italy’s debt levels.

Employment data from Spain last week exercabated the worsening Euro zone economy. Then, the number of unemployed people in Spain increased by 83,464 in January to almost 3.3 million, the largest monthly rise in five years according to government figures.

German yields rebounded after dropping below 0.1% last week, but the low level of yields is not expected to provide any upside to the EUR/USD. The expected US tariffs on European car imports will also further weaken the currency. The possibility of EUR/USD reaching 1.10 is a highly likely scenario under current weak conditions.

The UK Brexit uncertainty is also causing an impact on Europe’s economy. Although the BOE left interest rates unchanged last week, it however, cuts its forecast for 2019 GDP to only 1.2%.

Traders are advised to be watchful of this week’s news that will have an impact on EUR/USD. These are mainly the ones concerning GDP growth for Germany and other unplanned news that may be released. In addition, US data on CPI, PPI and Retail sales are also expected to have an influence over the direction of EUR/USD.

EUR/USD Technical Analysis

After a few days of stalling prices at strong resistance level 1.1470 – 1.1514, price reversed down last week. It was five straight down days for the EUR/USD last week. Currently, it is at the strong support zone of 1.1264 – 1.1302.

Price may rebound upwards from the current strong support level and retest the next resistance zone at 1.1354 – 1.1396. If it can break this level, it may return to retest again the resistance levels 1.1470 – 1.1514.

However, if price decisively breaks 1.1264, it will test the next level at 1.1213 – 1.1232.

We will need to watch closely upcoming news events this week as they could have a major impact on the direction of EUR/USD. Any further negative news might add to the current bearishness of EUR/USD.

The information provided here has been produced by third parties and does not reflect the opinion of AxiTrader. AxiTrader has reproduced the information without alteration or verification and does not represent that this material is accurate, current, or complete and it should not be relied upon as such. The Information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.