|

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

EUR USD technical analysis February 7 2019

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. 

Author

Yohay Elam

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.

More from Yohay Elam
Share:

Editor's Picks

AUD/USD stays bid above 0.7100 on Australian trade data, Mideast optimism

AUD/USD clings to minor recovery gains above 0.7100 in the Asian session on Thursday as a new Israel-Lebanon ceasefire keeps a lid on the safe-haven US Dollar. Meanwhile, strong AustralianTrade Balane data also help the Aussie pair sustain the bounce from weekly lows.

USD/JPY hovers near the 160.00 intervention threshold on Mideast tensions

USD/JPY struggles to find acceptance above 160.00 and retreats from a one-month high in the Asian session on Thursday amid fears that authorities will step in again to prop up the Japanese Yen. Furthermore, a new Israel-Lebanon ceasefire caps the US Dollar and supports the currency pair. However, renewed US-Iran tensions keep the downside limited in the Greenback and the pair.

Gold rebounds from one-week low as Israel-Lebanon truce pressures safe-haven USD

Gold gains some positive traction on Thursday and climbs to the $4,475 area during the Asian session, reversing a major part of the previous day's slide to a one-week low. The Israel-Lebanon truce prompts some profit-taking around the US Dollar and supports the commodity. 


Hyperliquid: ETF demand, capital rotation fuel HYPE rally as Bitcoin melts

Hyperliquid price sustains an upward trend near its all-time high of $75.76 on Thursday after posting 80% gains in May, while Bitcoin (BTC) retraces below $65,000, triggering a market-wide panic.

Kevin Warsh takes the Fed helm: What it means for the US Dollar
The Federal Reserve moves away from the highly predictable "forward guidance" model of the Jerome Powell era to a new “Kevin Warsh environment”, characterized by less communication, more policy surprises, and an increased focus on the Fed's complex balance sheet.
Recession on paper: What really moves the Canadian Loonie now?

Statistics Canada handed the headline writers a gift and the analysts a headache. Real GDP shrank 0.1% on an annualized basis in the first quarter, and with the fourth quarter of 2025 revised down to a 1.0% contraction, that is two negative quarters in a row, the textbook definition of a technical recession and Canada's first since the pandemic.