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Euro Talking Points

The 2019-low (1.1290) remains on the radar for EUR/USD as it extends the bearish sequence from earlier this week, but fresh data prints coming out of the euro-area may produce range-bound conditions as Germany, Europe’s largest economy, returns to growth.

Image of daily change for major currencies

Bearish EUR/USD Sequence Keeps 2019-Low on Radar Ahead Germany GDP

Image of daily change for eurusd rateImage of DailyFX economic calendar

Updates to Germany’s Gross Domestic Product (GDP) report are anticipated to show the economy expanding 0.1% in the fourth-quarter of 2018 after contracting 0.2% during the three-months through September, and a positive development may generate a bullish reaction in EUR/USD as the region skirts a technical recession.

A positive development may offer the ECB a bit of relief ahead of the next meeting on March 7 as the central bank concludes its easing-cycle, but President Mario Draghi & Co. appear reluctant to abandon the zero-interest rate policy (ZIRP) as the Governing Council struggles to achieve its one and only mandate for price stability.

Image of ecb interest rate

In turn, the ECB may continue to tame bets for a rate-hike as euro-area interest rates are expect ‘to remain at their present levels at least through the summer of 2019,’ and EUR/USD stands at risk of facing a more bearish fate over the coming months as the 304K rise in U.S. Non-Farm Payrolls (NFP) puts pressure on the Federal Reserve to further normalize monetary policy.

It remains to be seen if the recent shift in Fed rhetoric will persist as the U.S. economy shows little to no signs of an imminent recession, and the Federal Open Market Committee (FOMC) may find it difficult to defend the sudden change in forward-guidance as Chairman Jerome Powell & Co. pledge to be ‘data dependent.’ As a result, EUR/USD may continue to consolidate over the near-term as both the Fed and ECB endorse a wait-and-see approach for monetary policy, with the 2019-low (1.1290) on the radar as the Relative Strength Index (RSI) snaps the bullish formation carried over from late-2018. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.

EUR/USD Daily Chart

Image of eurusd daily chart
  • Keep in mind, the near-term outlook for EUR/USD remains constructive as it breaks out of the range-bound price action from November, but the failed attempt to close above 1.1510 (38.2% expansion) raises the risk for a larger pullback as the exchange rate extends the series of lower highs & lows from earlier this week.
  • In turn, 1.1290 (61.8% expansion) sits on the radar, with a break/close below the stated region raising the risk for a move towards 1.1220 (78.6% retracement), which lines up with the 2018-low (1.1216).

For more in-depth analysis, check out the 1Q 2019 Forecast for EUR/USD

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Want to know what other currency pairs the DailyFX team is watching? Download and review the Top Trading Opportunities for 2019.

--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.