EUR/USD Forecast: Coronavirus and US GDP could trigger next lower after the Fed breather

Is that all? EUR/USD has risen by a few pips but generally failed to take advantage of the relatively dovish decision by the Federal Reserve and it is now exposed to developments that may drive the dollar higher. 

The world's most powerful central bank left rates unchanged as widely expected, and made only subtle changes to its statement. However, these modifications are meaningful. The Fed lowered its assessment of household spending and also stressed that it aims to hit its inflation goal of 2% – not only approach this level.

The firming of its commitment implies looser monetary policy and has marginally weakened the dollar. However, EUR/USD has peaked at 1.1020, only slightly higher. 

The dollar is benefitting from safe-haven flows as the coronavirus outbreak continues spreading. India and the Phillippines have confirmed the first cases of the disease, while the death toll in China is already around 200. Severe restrictions on movement – imposed by Chinese and other authorities to contain the epidemic – are hitting global growth.

Stock markets are on the back foot and are waiting for further depressing news. The World Health Organization is set to announce a global emergency later on Thursday. The longer it lasts, the longer the dollar remains bid. 

Figures in focus

On the economic calendar, the first release of US Gross Domestic Product figures for the fourth quarter of 2019 is set to trigger volatility. The US economy grew at an annualized pace of 2.1% in the third quarter, and a similar read is likely now.

However, investors are wary of a weaker outcome after Durable Goods Orders for December missed estimates. Therefore, realistic expectations are probably lower, making it easier for investors to cheer slower growth – potentially giving a jolt to the greenback. 

See US GDP Preview: The fourth quarter marks time

In the old continent, Germany's states have been publishing their preliminary inflation figures for January – which are in line with expectations so far. The continent's largest economy is forecast to report a pickup in the Harmonized Index of Consumer Prices (HICP) from 1.5% yearly in December to 1.7% in January.

Economists expect the all-eurozone figures due out on Friday also to show an increase in headline prices, but underlying, core inflation is set to slip from 1.3% to 1.2%. The euro area will also release initial GDP estimates for the fourth quarter on Friday, and these are also set to show deceleration. 

See EZ inflation and GDP preview: Downbeat figures could trigger the next leg down for EUR/USD

Overall, economic data from both sides of the Atlantic and coronavirus headlines are set to dominate trading.

EUR/USD Technical Analysis

Euro/dollar remains on the back foot after falling below the uptrend support line, and the recent stabilization fails to alleviate the pressure. The currency pair is trading below the 50, 100, and 200 Simple Moving Averages on the four-hour chart. Moreover, momentum remains to the downside. 

Support awaits at 1.0990, which is the fresh 2020 low.  It is closely followed by 1.0980, the December trough, and then by 1.0940, a swing low from October. 1.0879 is next.

Resistance awaits at 1.1030, a high point earlier this week, and then by 1.1070, which provided support earlier in January. Next, we find 1.1110,  swing high, and then 1.1125, which played a role in both directions.