Euro dollar forecast: Fundamentals pointing to further falls, but a correction may be overdue

• EUR/USD extends its gradual decline on a growing fundamental divergence.
• Updated EU Forecasts are in the limelight, and also US jobless claims are of interest.
• The four-hour chart shows oversold conditions, implying a bounce.

Euro dollar is trading close to 1.1350, in a slow yet persistent grind to the downside. The divergence between the OK US economy and the slowing euro-zone one was reinforced by fresh developments and weighs on the pair.

US Fed Chair Jerome Powell said that the US economy is in a "good place", seeing the glass half full than half empty. While bond markets have discarded a rate hike this year, the booming job market may push inflation higher and force an increase.

And in the old continent, Germany reported another dismal data point. Industrial production dropped by 0.4% in December. An increase was forecast. The data join Wednesday's dismal factory orders number which also fell instead of a projected advance.

The latest forecasts from the German Bundesbank have shown that the economy barely escaped a recession and did not contract in Q4 2018. Italy did officially slip into a recession.

Both the largest economy and the third-largest one in the euro-zone will be in the limelight when the European Commission releases updated forecasts. The EC is expected to slash the growth outlook for all countries and this may add to pressure on the euro-zone. 

EC President Jean-Claude Juncker will be meeting UK PM Theresa May later in the day. The Brexit saga continues with the May aiming to change the controversial Irish Backstop in order to gain support from hard Brexiteers while the EU vehemently rejects any changes to the Brexit accord. The euro may move on significant developments on Brexit, but expectations are low.

In the US, weekly jobless claims will be watched more closely than usual after they spiked last week. 

See: US Weekly Jobless Claims Preview: The trend is strong

All in all, divergence will likely continue weighing on the pair, but the technicals show a different picture. 

Euro dollar technical analysis

The Relative Strength Index on the four-hour chart is below 30, indicating oversold conditions. The RSI thus implies a bounce before another move down. Momentum is to the downside.

Support awaits around 1.1340 which was a swing low in mid-January. 1.1310 was a double bottom in December and is the next line to watch. 1.1290 is the trough for 2019 low and the 2018 low at 1.1215 is next down the line.

1.1380 is the initial resistance line after temporarily capping the pair in late January. 1.1410 was a swing low around the same time and now works as resistance. 1.1425 is where the 200 Simple Moving Average meets the price. 1.1435 and 1.1450 are next in a busy area of resistance.