Main Talking Points:
- Eurozone GDP falls to 0.1% in Q4 2019
- Inflation continues to fall despite monetary support from the ECB
- EUR/USD continues to show signs of weakness
After a week dominated by the fears of a mass spread of the coronavirus outbreak, EURUSD continued to trade lower into Friday morning as traders anticipated the latest release of Eurozone GDP and inflation data.
And downward pressure continued as a preliminary reading showed that Eurozone GDP shrank to 0.1% in the fourth quarter of 2019, down from 0.2% in the previous quarter and below market expectations of an unchanged reading. Year on year growth also softened to 1%, down from 1.2% from the previous reading and below expectations of 1.1%.
The Eurozone figure comes after a 0.1% contraction in French Q4 GDP, and a better than expected 0.5% Q4 growth in Spain. Recent data coming from the Eurozone has been mixed, where an uptick in PMI data has been offset by a fall in industrial production and worsening employment data. This has kept the common currency subdued in recent weeks, overpowered by the increase in demand for the US dollar.
To add to euro weakness, core inflation for the month of January came in at 1.1%, down from 1.3% in the previous month, whilst headline inflation picked up to 1.4% from 1.3% in the previous month. Both figures remain well below the desired level of 2% set by the ECB, which announced in their last monetary policy meeting they would be reviewing whether the current strategy is appropriate, given the consistent weakness in CPI readings.
EUR/USD 1-hour chart
The recent downward pressure on the Euro has caused the pair to depreciate 1.85% in the month of January, below a key support level at 1.1100. But a small reversal on Thursday’s session has broken the downward channel that has been in play since Thursday the 16th, which was supported by an uptick in the RSI. Short-term resistance is now found at the 76.4% Fibonacci retracement from the highs of December 2019, at 1.1042, in confluence with the 200-SMA on the 1-hour chart. The price is supported on the downside by both the 50- and 100-SMA at 1.1017.
A fall below that level can see EUR/USD revisiting the 100% Fibonacci retracement at 1.0981, which has served as a key support/resistance level throughout the last quarter of 2019. On the upside, support-turned-resistance at 1.1100 and 1.1125 remain as key targets for an upward reversal.
| Change in | Longs | Shorts | OI |
| Daily | 16% | -10% | 8% |
| Weekly | -2% | -10% | -4% |
--- Written by Daniela Sabin Hathorn, Junior Analyst
Follow Daniela on Twitter @HathornSabin
