EUR/USD Forecast: Is This Only A Correction Or The Beginning Of A Downfall? Critical Support Awaits

• EUR/USD is correcting lower but holds onto most of its gains.
• Trade talks are going well, but clouds are darkening over Germany.
• The technical picture remains cautiously positive for the pair.

EUR/USD is trading in the mid-1.1400s, down from the highs but above the opening levels of the week. The world's most popular currency pair gained ground on the optimistic atmosphere on Monday. Echoes from Powell's dovish speech boosted stocks and triggered a sell-off of the safe-haven US Dollar.

On Tuesday, the optimism is fading, and another positive development tries to take its place, albeit with little success. Trade talks between the US and China are moving forward. China sent in President Xi's top economic adviser Liu He to the negotiations. US Commerce Secretary Wilbur Ross also expressed optimism. 

On the other hand, we have heard these hopes beforehand. Several positive tweets by President Trump failed to materialize into something substantial while the data shows a slowdown in China and in other places. Markets are taking it with a big grain of salt, and the USD is recovering its losses.

In the old continent, things are not looking that great. Monday's data was mixed: the Sentix gauge of business sentiment met expectations Germany's retail sales beat expectations and compensated for a disappointing drop in factory orders.

Tuesday's news from Germany is already decidedly disappointing. Industrial output from the continent's locomotive plunged by 1.9% in November, coming on top of a downward revision. There are growing fears that the contraction that the economy endured in Q3 was not a one-off and concerns of an outright recession are surfacing. 

The European Central Bank remained cautiously optimistic about euro-zone growth, and this cautious optimism is also reflected in EUR/USD. However, confidence is hard to justify with every such figure.

The economic calendar is light today with the US JOLTs report being the only notable number. Trump will deliver a speech early on Wednesday, at 2:00 GMT. He will address the government shutdown, and his televised speech will be watched by many. While some US figures have not been published, the impact on the economy and markets is minuscule at the moment.

In the UK, reports about a delay of Brexit, due on March 29th, have been denied by the government. So far, the pound ignores the news and so does the euro. However, we could see volatility coming in as we get closer to the January 15th vote on the Brexit deal.

All in all, the market mood is moving from positive to mixed, taking the wind out of EUR/USD's sails.

EUR/USD Technical Analysis

EUR/USD is trading above the 50 and 200 Simple Moving Averages on the four-hour chart, a positive sign. Momentum is also positive but losing steam. The technical picture is OK.

Critical support is at 1.1430 which served as support late in December and also coincides with the 50 SMA. 

1.1410 awaits close by. It capped the pair in early December. 1.1380 is a more significant level where EUR/USD had support in early January and where the price meets the 200 SMA. 1.1345 was a swing low last week, and next, we find 1.1310, 1.1270, and 1.1215.

Looking up, 1.1485 was the peak on Monday and also in mid-December. 1.1500 is not only a round number but was also November's high. 1.1550 was a stepping stone on the way down in October.