Price Prediction Update: New Lows Still Likely in EUR/USD Following Post-ECB Chaos

Dismal European Economic Numbers and Mysterious Mario Draghi

Last week, we noted that the European and US economies continue to diverge, which, together with monetary tightening by the Fed was among the main drivers of the EUR/USD weakness last year. Since the economic picture shifted in favor of the Dollar even more, and today, the miss in the German and Eurozone Manufacturing PMIs confirmed the severe slowdown in Europe.

Eurozone Manufacturing PMI missed 12 out of last 13 times, now lowest since 2013 (source: Fair Economy)

Most of the PMIs were revised downwards, and although there were some positive signs in the services PMIs, overall, the pace of the slowdown and the lowest level in the manufacturing measures since 2013 confirm the negative outlook. In the meantime, the US economy continues to hold up relatively well, and although we expect the global weakness to affect the US more and more, the divergence could still last for months.

Also, while the European Central Bank didn’t change its tightening schedule today, probably trying to “sit out” the softer period, Mario Draghi cited downside risks during the press conference of the Central Bank, and that likely boosted the Dollar later on. Add the confirmed bear-trap technical pattern that we pointed out last week, and a move below 1.12 looks even more likely now.

Long-Term Chart Analysis

EUR/USD, Daily Chart Analysis

The daily chart continues to look bearish, and the momentum indicators confirm the continuation of the long-term trend. The weak rising short-term trendline has also been broken, and the pair is now testing the 1.1275-1.13 zone, the last major area support level above the 1.12 low. Targets for the move are still found near 1.1135 and in the 1.0850-1.0950 zone, and should the counter-trend move in risk assets run out of steam as expected, the bearish move could even accelerate in the coming weeks.

Short-Term Chart Analysis

EUR/USD, 4-Hour Chart Analysis

The oversold short-term momentum readings that we mentioned last week now have been cleared by the sideways price action, and the lack of bullish momentum also confirms the bearish long-term setup.

With the 1.1440 level providing a great stop loss opportunity here (more aggressive short-term traders could use the developing declining short-term trendline as stop loss), traders could still enter a longer-term trade on today’s drop, even as the 1.1275-1.13 support zone is still intact.

Key Events Ahead

The economic calendar is full next week, even as tomorrow we won’t have key releases coming out, and all eyes will be on the Fed’s monetary statement on Wednesday and the US Employment Report on Friday. Following the recent dovish shift in Jerome Powell’s monetary stance, which was confirmed by other FOMC members as well, the monetary statement will likely point to downside risks and market disturbances, and a possible longer pause in the central bank’s rate hikes.

Other key reports will include the US CB Consumer Confidence Index on Tuesday, the German Prelim CPI on Wednesday, the US core PCE price index on Thursday, and the US ISM Manufacturing PMI and the Eurozone CPI report on Friday.

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Author:
Trader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.