EUR/USD Forecast: Finds some support near one-year old descending channel

Following a subdued trading action over the past two trading sessions, the EUR/USD pair came under some fresh selling pressure on Tuesday and tumbled to sub-1.0800 levels for the first time since April 2017. Concerns over deepening economic fallout from the coronavirus outbreak resurfaced on Tuesday after Apple warned that it will be unable to meet its March quarter sales target due to production disruption and weakening demand in China. This eventually fueled pessimism about the Eurozone growth outlook – in particular the export-driven German economy – and kept exerting downward pressure on the shared currency.

Bears remain in control

The already weaker sentiment deteriorated further after the latest German ZEW survey showed deteriorating economic sentiment in the region's largest economy. In fact, the Economic Sentiment Index dropped to 8.7 in February, down from 26.7 previous and missed consensus estimates by a big margin. Adding to this, the German Current Situation Index shrank to -15.7 from -9.5 and the broader Eurozone Economic Sentiment Index fell to 10.4 from 25.6 prior. The incoming weaker economic data renewed speculations for further policy easing by the European Central Bank and added to the bearish pressure surrounding the common currency.

Apart from domestic factors, the pair was further pressurized by resurgent US dollar demand. The buying interest surrounding the greenback gained extra traction on Tuesday following the release of the Empire State Manufacturing Index, which surpassed consensus estimates and rose sharply to 12.9 in February as compared to 4.8 previous. This coupled with a generally risk-off mood provided an additional boost to the greenback’s perceived safe-haven status against its European counterpart and collaborated to the pair’s downfall to near three-year lows.

The bearish pressure showed some signs of easing on Wednesday and assisted the pair to stage a modest recovery during the Asian session. In absence of any major market-moving economic data from the Eurozone, the pair seems more likely to consolidate its recent losses and remain confined in a narrow trading band ahead of the flash PMI prints on Friday. In the meantime, the US economic docket, featuring the second-tier releases of housing market data and Producer Price Index, along with speeches by influential FOMC members might produce some short-term trading opportunities.

Short-term technical outlook

From a technical perspective, extremely oversold conditions helped the pair to find some support near the lower end of over one-year-old descending trend-channel. However, any attempted recovery move seems more likely to confront some fresh supply near the 1.0830 horizontal level, which is closely followed by resistance near mid-1.0800s. Some follow-through buying might trigger a fresh bout of a short-covering move and lift the pair further beyond the 1.0870-75 intermediate resistance, towards reclaiming the 1.0900 round-figure mark.

On the flip side, the mentioned trend-channel support, currently near the 1.0785-75 region might continue to protect the immediate downside, which if broken might be seen as a fresh trigger for bearish traders and pave the way for a further near-term depreciating move. The pair then might accelerate the fall further towards testing the 1.0700 round-figure mark.