EUR/USD Daily Forecast – Euro Little Changed on Coronavirus Scare

The markets are in a full-on risk-off mode as investors grew worried about the Coronavirus over the weekend. Gold prices are up three-quarters of a percent shortly after the European open and the German DAX is down a staggering 1.75%.

The dollar, however, is little changed and has not been impacted much by the shift in investor sentiment. EUR/USD declined to it’s lowest level since early December last week and is seen holding in a tight range at the European open.

It should be a busy week for the currency pair despite the soft open. The Federal Reserve meets this week and there could also be a spillover effect from the Bank of England meeting on Thursday. As well, the end of the month often brings increased volatility.

The Ifo Institute for Economic Research released their German Business Climate index figures which showed a deterioration in the outlook for several sectors. The index declined to 95.9 in December against an analyst estimate of 97.1 and a prior reading of 96.3. The data, however, did not have a significant impact on the exchange rate.

Technical Outlook

A decline that followed last week’s ECB meeting forced the pair below a declining trendline that extended from the October low. Considering the bearish break, and the downward momentum, more downside is expected.

At the same time, the exchange rate trades near a support confluence and a near-term bounce should not be ruled out. Support comes from a horizontal level at 1.1025 and the lower bound of a trend channel that has encompassed price action in the decline that started at the beginning of the month.

The pair is on pace to print a bearish candlestick pattern for January which can also introduce more losses next month. Although an argument can be made that the pair has been alternating between losses and gains over the last five months and stuck in a range.

Bottom Line

• EUR/USD is little moved as the markets shift to risk aversion.
• A support confluence is in play near 1.1025 that can trigger a near-term bounce.
• Last week’s ECB meeting triggered a bearish break below a three and a half month trendline.