EUR/USD Forecast: Like the coronavirus, It will probably get worse before it gets better

EUR/USD has been extending its decline as the coronavirus story grips the headlines.
Speculation about the ECB's upcoming decision is set to dominate trading.
Wednesday's four-hour chart is pointing to further declines.

Yohay Elam FXStreet

Euro bears are spreading like the coronavirus disease – EUR/USD is on the back foot, shrugging off developments that should have pushed it higher.

The coronavirus has reached the US and financial markets took note. The safe-haven US dollar advanced on Tuesday but has pared these gains after Chinese authorities laid out a raft of measures to control the outbreak.

Nevertheless, some fear that the worst is still ahead, as travel ahead of the Chinese New Year could spread the virus quickly. It seems that EUR/USD is seeing the glass half empty rather than half full.

The common currency also seems to have forgotten the most recent economic figure coming out of the old continent. The German ZEW Economic Sentiment beat expectations with a score of 15 in January, showing that businesses are more upbeat about the prospects of Europe's largest economy.

ECB awaited

Investors are eagerly waiting for the European Central Bank on Thursday, and that may explain the caution in which they treat the euro. The ECB is unlikely to change its policy, but President Christine Lagarde and her colleagues will provide a fresh assessment of the economic situation.

Given her comments before assuming the current role, there is a chance that Lagarde may – like euro traders in recent days – see only the negatives. Nevertheless, there are reasons to be cheerful, or at least cautiously optimistic. Inflation is stabilizing, trade tensions are easing, and Europe may be gradually ready to open its purse strings.

See ECB Preview: Glass half green or a Lagarde drag on EUR/USD? Three scenarios

In Wednesday's trading, it seems that pessimism has a strong grip. After failing to ride higher on upbeat developments, the world's most popular currency pair may have more room to fall and hit new 2020 lows. Things may change on Thursday, but that is another day.

EUR/USD technical analysis

Euro/dollar is trading below the 50, 100, and 200 Simple Moving Averages on the four-hour chart. Momentum remains to the downside while the Relative Strength Index is still above 30 – outside oversold conditions.

Bears remain in control.

Support awaits at the daily low of 1.1075, followed by the holiday season trough of 1.1065. Next, we find 1.1040, which provided support in early December, and 1.0985.

Resistance is at 1.1105, a swing low from last week, followed by 1.1120, Tuesday's high. Next, we find 1.1145 and 1.1175.

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.

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