EUR/USD analysis: bears benefiting from fears as dollar lacks self-strength

EUR/USD Current price: 1.1462

  • US government partial shutdown becoming an accelerator to an economic slowdown.
  • December US core inflation figures in line with the Fed's medium-term target.

The EUR/USD pair gave back half of its weekly gains last Friday, closing around 1.1460, amid a sudden return to the greenback. There was no particular catalyst triggering dollar's recovery, although profit-taking ahead of this week events and renewed fears of a global economic slowdown, played their part. These last were fueled by market talks suggesting that China plans to downgrade this year's economic growth target. Market's attention these days will focus on the Brexit's deal vote in the UK Parliament, and the US partial government shutdown, now officially the longest on record, and with no expectations that it would be solved anytime soon. The American currency was also supported by December CPI, as despite headline monthly inflation fell 0.1%, amid lower oil prices, the core readings, which exclude the volatile food and energy components, was up 0.2% MoM and 2.2% YoY, steady above the Fed's medium-term target.

The US government partial shutdown means that multiple macroeconomic figures won't be out until things normalize, with the US calendar pretty much empty this Monday. It also means the government keeps losing money, and while just around 25% of government offices are closed, the accumulated losses in the past 3 weeks are of about $3.6B, according to Trump’s own chief economist, spurring concerns about an economic slowdown. Adding to the doom and gloom feared by the market, about 800,000 federal workers didn't get their paychecks last Friday. That said, the greenback could benefit from runs to safety, but lacks strength of its own to rally.

The EUR/USD pair tested and retreated from the 23.6% retracement of its 2018 decline, which reduces chances of a sustainable recovery ahead. In the daily chart, it's now trading a handful of pips below a flat 100 DMA, still above a mildly bullish 20 DMA currently at around 1.1410. Technical indicators in the mentioned chart, technical indicators have turned sharply lower within positive ground, now nearing their midlines, indicating an increasing risk of a bearish extension. Shorter term, and according to the 4 hours chart, technical indicators have also turned sharply lower, with the Momentum now pressuring its mid-line and the RSI already into negative ground at 44. In this last chart, the pair accelerated south after breaking below its 20 SMA, also a sign of mounting downward pressure.

Support levels: 1.1420 1.1385 1.1340

Resistance levels: 1.1500 1.1530 1.1570

View Live Chart for the EUR/USD

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