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EUR/USD Daily Forecast – Euro Falls to Three-Week Low

By:
Jignesh Davda
Updated: Jan 20, 2020, 09:56 UTC

EUR/USD edged lower in early trading on Monday to trade at levels not seen since the last week of December.

EUR/USD Daily Forecast – Euro Falls to Three-Week Low

EUR/USD fell sharply on Friday and is seen extending losses to start the new week. The pair trades at levels not seen since December 26th although downside momentum is likely to subside as US banks are closed today in observance of Martin Luther King Day.

The currency pair posted a two-day loss at the end of last week that wiped out nearly a week’s worth of recovery. Friday’s decline, in particular, was notable as there was momentum behind it which signals that the pair has once again resumed within the bearish trend that began at the start of the year.

At the same time, two things suggest the downside might be somewhat limited in the early week. The holiday in the US stands to keep trading volumes and volatility light for the session ahead. But more importantly, the ECB is scheduled to meet later in the week. Market participants often hold off on placing meaningful speculative positions until after gaining clarity on the bank’s latest monetary policy stance.

Earlier today, the producer price index in Germany was reported to rise 0.1% in December and 1.1% on an annual basis. Destatis, Germany’s statistics bureau, reported a decline in Natural Gas and Petroleum product prices while Electricity prices rose.

Technical Analysis

Friday’s decline was an important one for two reasons. First, the exchange rate broke lower from a flag pattern that had contained price action since the US jobs report. The technical break lower from the pattern offers a strong signal for a bearish continuation.

EURUSD Hourly Chart

Second, Friday’s daily candle stands out in a major way. There’s a clear distinction from it and the low momentum rise from earlier in the week. Combined with the downward trend that has been taking place since the start of the month, there’s little reason to expect a bullish reversal at this stage.

For this reason, recovery rallies are likely to remain shallow and the first level of interest to the upside falls at 1.1106. Beyond that, further resistance for the pair is seen at 1.1129.

To the downside, support for the pair is seen at 1.1072. This is considered a major level as it has acted as both support and resistance on a daily chart dating back to July.

Further, there is a rising trendline that comes into play near the 1.1072 horizontal level. It is drawn by connecting the October and December lows.

Bottom Line

  • EUR/USD has edged lower after a sharp fall on Friday. However, the downside momentum might fizzle considering the bank holiday in the US today.
  • The ECB meets on Thursday and speculative traders might be cautious positioning ahead of it.

About the Author

Jignesh has 8 years of expirience in the markets, he provides his analysis as well as trade suggestions to money managers and often consults banks and veteran traders on his view of the market.

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