EUR/USD Forecast: things are getting uglier than you think

• Escalating concerns about global economic growth and the US government shutdown to keep investors on their toes.
• EUR/USD set to extend decline in the upcoming weeks, but not too far away.

It was a tough week for FX traders, which kept struggling to find a directional catalyst in a risk-averse environment. Political jitters remain the same, with worsening scenarios related to the trade war and global economic growth, and a thin light of hope in the Brexit front. The greenback edged marginally higher against most rivals, with the exception of the Pound. The EUR/USD pair fell to 1.1288, its lowest since mid-December, recovering some on Friday to settle around 1.1350.

The European Central Bank had a monetary policy meeting this week, and, as largely expected, policymakers kept interest rates unchanged, also the ultra-loose stance on monetary policy. The accompanying statement was little changed from that offered last December, although Draghi & Co. acknowledged the risk represented by slowing growth, with the risk surrounding the euro area growth outlook now to the downside, amid persistent uncertainty related to geopolitical factors and the threat of protectionism. Draghi was cautious, warning that further deceleration in economic situation could be deeper and longer than previously estimated, somehow suggesting that the central bank may take longer to pull the trigger, previously expected by the end of this year.

European data released throughout the week, confirmed that such worries are real: the Markit flash PMIs released this week indicated that  "the  euro area economy edged closer to stagnation at the start of 2019, with businesses reporting the weakest rise in output for five-and-a-half years and the first fall in demand for over four years," according to the official report.  The ZEW Survey showed that economic sentiment in Germany and the Union improved a bit but remains sour, while the IFO survey showed confidence only in the assessment of the current situation, with sharply lower expectations dragging the Business Climate index to 99.1 in January from 101.0 in December. Furthermore, the ECB's Survey of Professional Forecasters released Friday showed that the 2019 GDP growth is now seen at 1.5%, below a previous projection of 1.8%. Inflation has also been revised lower, now at 1.5% from the previous projection of 1.7%.

US encouraging data passed unnoticed, overshadowed by the government partial shutdown that kept the macroeconomic calendar quite scarce for a fourth consecutive week. Anyway, weekly unemployment claims for the week ended January 18 were of 199K, the lowest level since November 1969. More relevant, the Markit survey for January indicated a solid start to the year as manufacturing business expanded at the fastest pace in eight months, while the service sector growth eased to the slowest in four months.

Meanwhile, US President Trump has two battle fronts opened, none of those seem poised for a soon victory. The trade war with China continues, with confident tweets about "progress" opposing to comments from Wilbur Ross, the Commerce Secretary, who said that Washington and Beijing are "miles and miles" from getting a resolution. The theft of technological know-how continues being the heart of the issue. The other issue, of course, is the partial government shutdown, the longest in the US history, extending by over a month already. The Senate made an attempt to solve it this Thursday, but two different bills aimed to solve the situation were blocked in the House.

A soon-to-come solution for all of these issues is out of the table, which means market players will keep struggling to find a reason to move pairs in a certain direction. This upcoming week, the only notable data will be the US Nonfarm Payroll report to be out on Friday.

EUR/USD technical outlook

The common currency seems poised to extend its decline, given that it posted lower lows and lower highs for a third consecutive week against its American rival. The pair has broken last Friday below the 61.8% retracement of the December/January rally at 1.1380, with the level rejecting bulls' attempts several times these last few days.

The weekly chart shows that the pair barely held above a flat 200 SMA, while the 20 SMA gains downward traction far above the current level and below the 100 SMA, which stands above 1.1700. Technical indicators in the mentioned chart remain within negative levels, the Momentum directionless and the RSI heading lower around 42, maintaining the risk skewed to the downside. In the daily chart, the technical stance is bearish, given that the pair is developing below all of its moving averages, while the Momentum heads firmly lower within negative levels and the RSI hovers around 45.

The first support comes at 1.1269, December low, followed by 1.1215, 2018 low. Below this last, the pair could extend its slide to 1.1160 next week. Resistances come at the mentioned 1.1380, followed by the strong 1.1425 price zone, en route to 1.1460.

EUR/USD sentiment poll

The FXStreet Forecast Poll shows that the pair will remain on the losing side these upcoming weeks, with bears leading the way in the weekly and monthly perspective, with selling interest clearly increasing from last week. In the 3-month view, bulls are a majority of 47% with the average target at 1.1406, slightly below the one seen last week.

In the Overview chart, the moving averages have turned flat, reflecting the ongoing uncertainty, although in the longer-term view, the largest accumulation of targets comes above the current level. 

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