Market Overview

EUR/USD Forecast: Doom and Gloom Are Back, Critical Support in Danger

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  • EUR/USD failed in conquering 1.1500 and falls.
  • Concerns about China and the US government shutdown dominate.
  • The technical picture is mixed for the pair which holds onto critical support.

​​​​​​EUR/USD is trading in the low 1.1400s, down from the highs near 1.1500. The mood in the markets is gloomy, favoring the safe-haven US Dollar and Japanese Yen.

China's Caixin Manufacturing Purchasing Index dropped to 49.7 points in December. Any score below 50 indicates a contraction. The worrying independent figure joined a similar number from the Chinese authorities. Both numbers reflect the damage of the trade wars to the world's second-largest economy.

US President Donald Trump tweeted about a successful telephone conversation with his Chinese counterpart Xi Jinping. Hopes for an agreement on a trade deal have waned after the Chinese data.

Also, the US government is still partially shut down. Trump summoned congressional leaders to a meeting later in the day in an attempt to resolve the crisis. However, he may insist on funding for the border wall, something that Democrats are vehemently opposed to. They will take over the House shortly. 

These two stories weigh on stock markets quite heavily and push money into bonds. Both US and German 10-year yields are falling. 

The Italian Parliament passed the 2019 budget in the dying days of 2018, but concerns about the high debt prevail. The euro-zone manufacturing PMI was confirmed at 51.4 points, as expected. 

There are no significant figures due later on, leaving sentiment to lead currencies.

EUR/USD Technical Analysis

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EUR/USD lost its minor upside Momentum and is falling towards the 50 Simple Moving Average on the four-hour chart. The Relative Strength Index is quite stable though.

1.1425 supported the pair in the last hours of 2018 and held it down around Christmas. It is closely followed by the 50 SMA, making it a critical line.

1.1405 capped EUR/USD twice in mid-December. 1.1345 was a low point between Christmas and New Year's Day. 1.1330, close by, served as support. The next lines to watch are 1.1305 and 1.1270; both worked as double-bottoms. 

1.1480 was a high point near the end of the year. The round number of 1.1500 held euro/dollar down in the wake of 2019 and also in November 2018. 1.1550 and 1.1625 were high points on the way down. The swing high of 1.1585 seen around the new year can be ignored as an abnormal price related to extremely thin liquidity. 

 

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