EUR/USD Price Prediction: Big Week for the Eurozone and the U.S; Large Volatility Eyed   

  • Eurozone economy in a very fragile state, but USD weakness helps keep EUR higher.
  • Mixed technical signals across the time frames, but weekly EUR/USD view could have staged a rebound.

The EUR/USD bulls managed to force a strong weekly close despite the large rollercoaster of a ride that was seen. The foundations appear to have been laid for a recovery for the pair, pushing back into the 1.14 territory. This comes after taking an initial beating on Thursday 24th January, which was driven heavily by fundamental data points.

Soft Eurozone Data

The trading week that just passed saw further highlighted concerns surrounding the Eurozone economy. A raft of weak manufacturing and services PMIs, across the board, were somewhat worrying. This added to the already nervous economic market view of the bloc. Included in the batch of disappointing data was the powerhouse Germany.

Germany’s manufacturing sector is on its way to a recession, as the PMI fell to 49.9 in January, down from 51.5 in December. IHS, who release the data, noted, “Lower demand in overseas markets (particularly China) and heightened uncertainty were all highlighted as factors. New export orders fell at an accelerated rate across both monitored sectors during the month.”

Concerns are already doing the rounds in general, specifically with the German economy. There are growing concerns that they are on the bring of a recession. Data points continue to consistently disappoint market expectations. Earlier in the month, the German industrial production was reported to have dropped for the third consecutive month.

Draghi Downbeat on Eurozone Economy

On top of the bearish data points, the ECB followed the negative tone with their caution on the outlook of the economy. President Mario Draghi changed his language to seeing ‘risks tilted to the downside’ from being ‘broadly balanced’. This statement alone was enough to see large selling pressure for Euro.

Technical Review – EUR/USD

EUR/USD daily chart.

A chunky push was seen higher on Friday, thanks to nothing but USD weakness. The price has re-entered a supply area within the early 1.14 territory – another retest of the breached pennant structure, which has held again for now. In terms of the 4-hour chart view, it sees an evening star candlestick. The weekly close suggests of a potential recovery for EUR/USD, despite the above detailed. A bullish hammer can be observed; there was a similar closure seen in August 2018 from the same marked demand area.

EUR/USD weekly chart.

USD Weakness

DXY daily chart.

DXY price action was moving within an ascending wedge formation that broke out and retested last week. The price was rejected additionally at a retest of the 61.8% Fibonacci area. Hard selling pressure kicked in across the board on Friday. There wasn’t a particular suggested catalyst for this, however several news wires were stressing the lack of positive momentum between US-China trade talks. The US Commerce Secretary said they are miles and miles away from a deal. The market may also be pricing in a dovish FOMC on Wednesday (selling on anticipation to then buy on the fact). The price may need to edge closer towards the 95.65-60 zone to see buyers return (23.6% Fibonacci and demand area).

Featured image courtesy of Shutterstock.

Ken has over 8 years exposure to the financial markets. During a large part of his career, he worked as an analyst, covering a variety of asset classes; forex, fixed income, commodities, equities and cryptocurrencies. Ken has gone on to become a regular contributor across several large news and analysis outlets.