EUR/USD Forecast: 1.1100 in danger as both technicals and fundamentals point lower

When a currency pair is unable to recapture its previous support line – it has one direction – down. EUR/USD has been sliding once again after failing to extend its post-Draghi bounce. The main driver for the recent downfall has been the upbeat US Gross Domestic Product (GDP) report on Friday. The world's largest economy reported an annualized growth rate of 2.1% in the second quarter – above expectations. Moreover, economists were pleased that the US consumer drove the economic expansion in the spring after a slowdown earlier.

The upbeat US economic figures have reduced expectations for significant monetary stimulus from the Federal Reserve. The Fed is set to cut interest rates on Wednesday – for the first time since the crisis – but this move will probably be a one-off and not the beginning of an easing cycle. Markets priced in a long cycle of rate reductions and are now paring these expectations. 

The Fed's moderate easing contrasts rising expectations from the European Central Bank. The ECB refrained from any action on Thursday but laid the ground for announcing a significant "package" in its September meeting. The euro ended Thursday on a higher note but has been retreating since then.

Trade tensions between Europe and the US are mounting after French President Emmanuel Macron signed into law a "digital tax" on technology companies – primarily American ones. President Donald Trump has responded by threatening to slap a tariff on French wines and other European products.

In the meantime, face to face trade talks between the US and China are resuming today in Shanghai – for the first time since May. Both sides have only held phone conversations since Trump, and his Chinese counterpart Xi Jinping agreed on a "trade truce" in late June. Any headlines coming out for the meeting may move markets.

The economic calendar features few events today, leaving traders to follow political developments and speculate on the Fed decision. Other notable events are the US Non-Farm Payrolls, euro-zone inflation, and EZ GDP.

EUR/USD Technical Analysis

Momentum on the four-hour chart remains to the downside, and EUR/USD continues trading below the 50, 100, and 200 Simple Moving Averages – all bearish signs. The Relative Strength Index (RSI) is leaning lower and remains outside the oversold territory. As mentioned earlier, the currency pair's failure to recapture the lowest support line at 1.1195 is also a sign that further falls are on the cards.

Initial support awaits at 1.1111, which was a low point on Friday. Thursday's fresh two-year low of 1.1101 is next down the line. Even lower, 1.1025 and 1.0900 are support lines dating back to 2017.

Looking up, some resistance awaits at 1.1155, which held EUR/USD down last week. The swing high of 1.1190 is the next line to watch. Far higher, 1.1245 worked as both support and resistance earlier in July.