EUR/USD Outlook: Next relevant bearish target is pegged near 1.2000 ahead of 50% Fibo

• Softer risk tone benefitted the safe-haven USD and continued exerting pressure on EUR/USD.
• Worries about the potential economic fallout from COVID-19 weighed on investors sentiment.
• The set-up has shifted in favour of bearish trader and supports prospects for further weakness.

The EUR/USD pair witnessed some heavy selling on Friday and prolonged its recent corrective slide from multi-year tops touched earlier this January. The downfall was sponsored by the ongoing US dollar recovery amid concerns about the continuous surge in the number of new COVID-19 cases worldwide. Friday's disappointing US macro data added to market worries about the potential economic fallout from the coronavirus pandemic and weighed on investors' sentiment.

In fact, the US monthly Retail Sales unexpectedly contracted by 0.7% MoM in December. The core reading also missed market expectations by a big margin and fell 1.9%. This, in turn, further fueled expectations for additional US fiscal stimulus measures and continued benefitting the safe-haven greenback. The shared currency was further pressured by the Italian political crisis – wherein the government needs to survive crucial votes in parliament on Monday and Tuesday.

The pair finally settled near the lower end of its daily trading range and refreshed multi-week lows during the Asian session on Monday. The USD remained well supported by the prevalent cautious mood around the equity markets, which seemed rather unaffected by better-than-expected Chinese economic releases, including the fourth-quarter GDP growth figures. The world's second-largest economy grew 6.5% during the October-December period, though did little to influence the sentiment.

The pair was last seen trading just above mid-1.2000s and remains at the mercy of the USD price dynamics amid absent relevant market-moving economic releases, either from the Eurozone or the US. That said, developments surrounding the coronavirus saga will play a key role in influencing the broader market risk sentiment and eventually produce some trading opportunities around the major.

Short-term technical outlook

From a technical perspective, Friday’s sustained break and closing below the 1.2130-20 congestion zone could be seen as the first signs that the pair has topped out in the near-term. Some follow-through selling below the 1.2060-55 region – coinciding with the 38.2% Fibonacci level of the 1.1603-1.2350 positive move – will reaffirm the bearish outlook. The pair might then turn vulnerable and accelerate the slide further towards challenging the key 1.2000 psychological mark. This is closely followed by the 50% Fibo. level, around the 1.1975 region, which if broken will set the stage for a further near-term depreciating move.

On the flip side, attempted recovery moves might now confront immediate resistance near the 1.2100 round-figure mark. Any subsequent strength might be seen as a selling opportunity and runs the risk of fizzling out rather quickly near the 1.2120-30 support breakpoint, now turned resistance. A sustained move beyond might trigger a short-covering move and push the pair further towards the 23.6% Fibo. level, around the 1.2170-75 region, en-route the 1.2200-1.2210 heavy supply zone.