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EURUSD outlook set to be fairly lacklustre

IT is a new year and the EURUSD is looking less than exuberant. In fact, if we were to refer to the economic and fundamental data published at the end of 2018 as a guide for what we can expect in 2019, then EURUSD is set to be fairly lacklustre.

In December 2018, the European Central bank (ECB) formally enacted to end its bond-buying scheme that was announced by President Mario Draghi during the ECB conference in mid-2018. This move came about despite reports of the eurozone growing at its slowest pace in four years.

Germany reported its lowest gross domestic product (GDP) growth in five years. With Europe's largest economy growing only by 1.5 per cent in 2018 compared to 2.2 per cent in 2017, in addition to ECB's lower growth forecast for 2019, Europe's economy is looking bleak.

From a technical viewpoint through the four-hourly charts of EURUSD, we notice that since November 2018, the EURUSD has been on a gradual upward move indicative of a price retracement as it enters a period of price consolidation with range of the currency pair becoming limited.

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EURUSD has been range bound, typical of prices entering a consolidation phase. Although the price of EURUSD started the year 2019 on a positive note as it broke through the recent range high and cleared the 1.1500 price mark, this upward move did not last long as it subsequently collapsed and broke back into the 1.14 levels just as quickly.

Since the beginning of 2019, EUR has started showing signs of weakness and depreciating against the USD with a head and shoulders chart pattern forming. Referring to this pattern, price has since broken the neckline and continued downwards.

Potentially the price of EURUSD could see a pullback to test the next immediate resistance levels of 1.1450 before continuing down towards challenging the bottom of the range covered by the upward sloping trend-line as a form of support around the 1.1300 levels, in between, the next immediate support is around 1.1350 formed by a confluence of Fibonacci retracement levels.

UK's inability to forge a mutually acceptable Brexit deal between the UK and EU adds to the gloomy outlook for EURUSD. Coupling this with the poor economic numbers from the bloc, the EURUSD is susceptible to poorer than expected data in the region which could provide an impetus to bring the EURUSD lower.

  • The writer is senior strategist at Phillip Futures.

Disclaimer: Chartpoint is provided by Phillip Securities Research for information only, and should not be construed as investment advice.