EUR/USD Forecast: Seems unable to recover from the one-two punch amid trade pessimism


  • EUR/USD has been on the back foot after upbeat US data and weak German figures.
  • Tension towards rate decisions on both sides of the Atlantic may cause jittery moves.
  • Monday's four-hour chart is pointing to a loss of momentum and potential falls.

"It's the economy, stupid" – That comment from Bill Clinton's 1992 campaign is as relevant as ever to EUR/USD's drop – and its inability to recover. The economic gap between the US and German figures is weighing on the pair. 

US Non-Farm Payrolls figures smashed expectations with a gain of 266,000 jobs in November, on top of upward revisions. While monthly wage growth fell short of expectations with 0.2%, salaries rose by 3.1% yearly, beating estimates. Moreover, the University of Michigan's preliminary Consumer Sentiment Index for December also exceeded forecasts with a score of 99.2. Friday's reports put away doubts that emerged from previous releases.

See November payrolls boost Fed’s economic case for the December 11 FOMC

On the other side of the Atlantic, Germany reported a plunge of 1.7% in industrial output in October, far worse than a minor increase that was expected. The weak figure joined a drop in Factory Orders from Europe's largest economy. 

Euro/dollar fell from above 1.11 to around 1.1050. Where next? Sentix Investor Confidence for the euro-zone is forecast to show growing pessimism in the old continent. Still, markets will likely focus on the week's most meaningful events – the Federal Reserve's rate decision on Wednesday and the European Central Bank's one on Thursday. Both central banks are on course to leave their policies unchanged, but their comments on the economy may rock markets. Investors will look for hints toward monetary policy in 2020.

See Fed Preview: Is the bar higher for hiking? Powell's may down the dollar, three things to watch

Six days to new tariffs?

Another significant event is looming over markets – the US deadline to slap China with new tariffs – on December 15. And here, markets may move on any headline coming out of the talks. According to reports, Beijing is instructing its companies to reduce their reliance on foreign computer hardware and software – thus accelerating its decoupling process from the US.

The world's second-largest economy is suffering from the 18-month long trade war with \Washington. Chinese trade balance figures have shown an unexpected drop in exports – especially with the US. 

Comments from both sides of the Pacific may move euro/dollar. Optimism about reaching a deal may boost risk sentiment, weighing on the US dollar and pushing the currency pair higher. Pessimism about a breakdown in talks may send EUR/USD down. 

President Donald Trump called on the World Bank to stop lending to China while his counterparts in Beijing have repeatedly expressed anger at the US bill denouncing Chinese violations of human rights in the western province of Xinjiang. 

While the world's largest economies claim that they are close to a deal, the latest rhetoric does not bode well for an accord. That may extend EUR/USD's misery. 

EUR/USD Technical Analysis 

EUR USD Technical Analysis December 9 2019

Momentum on the four-hour chart has turned negative, and the currency pair slipped below the 200 Simple Moving Average on the four-hour chart. However, EUR/USD is holding above the 50 and 100 SMAs, which converge around 1.1050. 

Overall, the technical picture has worsened for the pair.

Support below 1.1050 awaits at 1.1030, which capped euro/dollar in late November. It is followed by 1.0980, which is November's low. Further down, 1.0940 and 1.0905 were swing lows in the autumn, ahead of 1.0879 – the 2019 trough. 

Looking up, some resistance awaits at 1.1065, which provided support last week and converges with the 200 SMA . It is followed by 1.11, a round level that held the pair down during most of November. Next, 1.1115 is the December high. It is followed by 1.1130, which provided support in early November, and 1.1180 – a critical double top. 

 

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