Euro Forecast: Outlook for EUR/USD Turning Increasingly Bearish
Source: IG Charts
Fundamental Euro Forecast: Bearish
- As the most widely traded currency pair in the world, EUR/USD is particularly sensitive to global market sentiment.
- For now, traders are unsure whether to move back into riskier assets as the coronavirus pandemic shows signs of peaking, and countries reopen for business, or into safe havens as a deep economic recession approaches.
- If, as seems likely, recession fears outweigh coronavirus optimism, the Euro will likely suffer against the US Dollar.
Euro price at risk as global recession approaches
For financial market traders, a key decision is looming: whether to buy riskier assets as the coronavirus pandemic shows signs of peaking, and more countries decide to ease restrictions, or to continue to opt for cash and safe havens like the US Dollar, gold and US Treasury notes and bonds.
Italy, Denmark, Austria and the Czech Republic have all eased some of the rules designed to counter the spread of Covid-19 and limit the damage to their economies: a positive for the Euro. However, the constant flow of data suggesting that the coming worldwide recession will be deep and long-lived will likely continue to damage market sentiment and outweigh any Euro optimism.
As the chart below shows, EUR/USD has weakened again after breaking to the upside from a triangle pattern on the daily chart, suggesting it was a false breakout. While this is primarily a fundamental look-ahead, it is noteworthy that fundamentals and technicals look to be aligned.
EUR/USD Price Chart, Daily Timeframe (January 8 – April 16, 2020)
Chart by IG (You can click on it for a larger image)
Week ahead: Ifo and ZEW
Last week, US economic data took center stage. This week, some key Eurozone figures are due that will emphasize the economic weakness of the region and could therefore damage EUR/USD accordingly. The first important number due is the ZEW measure of German economic sentiment; ZEW is a German research institute that polls investors each month and the market is positioned for an improvement to -43.0 in April from -49.5 in March, leaving plenty of room for disappointment.
Thursday’s GfK measure of German consumer sentiment and ‘flash’ purchasing managers’ indexes could also move the market but arguably the most important data point of the week will be Friday’s Ifo business climate index for Germany. Economists are expecting a drop to 77.2 in April from 86.1 in March but, again, there is a chance of an even steeper slide that would weaken EUR/USD and the Euro crosses.
--- Written by Martin Essex, Analyst and Editor
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.