EUR/USD Forecast: Is this only a correction or the beginning of a downfall? Critical support awaits

EUR/USD is correcting lower but holds onto most of its gains.
Trade talks are going well, but clouds are darkening over Germany.
The technical picture remains cautiously positive for the pair.

Yohay Elam FXStreet

EUR/USD is trading in the mid-1.1400s, down from the highs but above the opening levels of the week. The world's most popular currency pair gained ground on the optimistic atmosphere on Monday. Echoes from Powell's dovish speech boosted stocks and triggered a sell-off of the safe-haven US Dollar.

On Tuesday, the optimism is fading, and another positive development tries to take its place, albeit with little success. Trade talks between the US and China are moving forward. China sent in President Xi's top economic adviser Liu He to the negotiations. US Commerce Secretary Wilbur Ross also expressed optimism.

On the other hand, we have heard these hopes beforehand. Several positive tweets by President Trump failed to materialize into something substantial while the data shows a slowdown in China and in other places. Markets are taking it with a big grain of salt, and the USD is recovering its losses.

In the old continent, things are not looking that great. Monday's data was mixed: the Sentix gauge of business sentiment met expectations Germany's retail sales beat expectations and compensated for a disappointing drop in factory orders.

Tuesday's news from Germany is already decidedly disappointing. Industrial output from the continent's locomotive plunged by 1.9% in November, coming on top of a downward revision. There are growing fears that the contraction that the economy endured in Q3 was not a one-off and concerns of an outright recession are surfacing.

The European Central Bank remained cautiously optimistic about euro-zone growth, and this cautious optimism is also reflected in EUR/USD. However, confidence is hard to justify with every such figure.

The economic calendar is light today with the US JOLTs report being the only notable number. Trump will deliver a speech early on Wednesday, at 2:00 GMT. He will address the government shutdown, and his televised speech will be watched by many. While some US figures have not been published, the impact on the economy and markets is minuscule at the moment.

In the UK, reports about a delay of Brexit, due on March 29th, have been denied by the government. So far, the pound ignores the news and so does the euro. However, we could see volatility coming in as we get closer to the January 15th vote on the Brexit deal.

All in all, the market mood is moving from positive to mixed, taking the wind out of EUR/USD's sails.

EUR/USD Technical Analysis

EUR/USD is trading above the 50 and 200 Simple Moving Averages on the four-hour chart, a positive sign. Momentum is also positive but losing steam. The technical picture is OK.

Critical support is at 1.1430 which served as support late in December and also coincides with the 50 SMA.

1.1410 awaits close by. It capped the pair in early December. 1.1380 is a more significant level where EUR/USD had support in early January and where the price meets the 200 SMA. 1.1345 was a swing low last week, and next, we find 1.1310, 1.1270, and 1.1215.

Looking up, 1.1485 was the peak on Monday and also in mid-December. 1.1500 is not only a round number but was also November's high. 1.1550 was a stepping stone on the way down in October.

More: EUR/USD drop may reach its limits as strong support awaits – Confluence Detector

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

AUD/USD rises to 0.6950 as USD slips on Fed's Warsh

AUD/USD regains traction and extends the bounce toward 0.6950 in the Asian session on Friday. Fed Chair Warsh's comments reinforce the selling pressure on the US Dollar, allowing the pair to stretch higher. Warsh said that he remains committed to delivering price stability without giving away anything on future interest rate path.

USD/JPY falls in symc with USD, gives up 158.00 after Warsh's speech

USD/JPY has come under fresh selling pressure and gives up 158.00 in the Asian session on Friday amid the emergence of fresh US Dollar selling. Fed Chair Warsh's non-committal commentary on the future tightening path, weighs on the US Dollar and the pair.

Gold looks vacillating above $4,150

Gold alternates gains with losses below the key $4,200 mark per troy ounce on Friday. The yellow metal’s irresolute price action comes in response to a modest pullback in the US Dollar and a tepid recovery in US Treasury yields across the board.

Bitcoin steadies at $82,000: The five forces crushing the Uptober rally

Crypto markets have remained under pressure so far in October, with Bitcoin (BTC) sliding below $80,000 earlier this week before recovering to around $82,000 on Friday, as macroeconomic headwinds and cooling demand weigh on the market.

The Fed just got a second hot inflation number. Here's what the diesel signal is really saying

The Federal Reserve (Fed) faces a renewed inflation challenge after two consecutive reports showed price pressure intensifying across the US economy. September's Consumer Price Index (CPI) confirmed accelerating consumer inflation, while the Producer Price Index (PPI) revealed an even sharper rise in business costs. Behind both reports lies a common factor: energy prices.

Everyone's dumping Gold after hot US inflation. Here's why $4,100 could be a floor, not a cliff

Gold (XAU/USD) is recovering from a sharp sell-off triggered by hotter-than-expected United States (US) inflation data released on Wednesday. The precious metal briefly plunged toward $4,073 as investors increased their bets on further Federal Reserve (Fed) interest rate hikes before recovering as US Treasury yields and the US Dollar (USD) reversed their initial gains.