EUR/USD Forecast: Further Declines Expected Once Below 1.0980

EUR/USD Current Price: 1.1048

• ECB kept its monetary policy “highly accommodative,” will start a strategic review on inflation policy.
• Markit will release the preliminary estimates of January PMI for the EU and the US.
• EUR/USD near a fresh January low of 1.1035, further declines expected once below 1.0980.

The EUR/USD pair fell to a fresh January low of 1.1035 on the back of renewed risk aversion, and a far from hawkish ECB’s Lagarde. The European Central Bank had a monetary policy meeting, and as expected, the monetary policy was left unchanged. The accompanying statement reiterated much of what was said in December, as policymakers decided to maintain a “highly accommodative” policy for as long as needed. On inflation, President Lagarde announced a strategic review on inflation policy, the first in over two decades, meant to determine whether the current definition of price stability is still appropriate. Mrs Lagarde, however, indicated that she would adhere to the current strategy and target until a new strategy has been defined, refusing to comment on a possible inflation target band.

In the meantime, the preliminary estimate of the EU January Consumer Confidence resulted at -8.1, worse than expected. In the US, however, weekly unemployment claims decreased to 211K for the week ended January 17, while the Kansas Fed Manufacturing Activity Index printed -4 in January, better than the -6 expected.

This Friday, Markit will release the preliminary estimates of January Manufacturing PMI and Services PMI for the EU and the US. Manufacturing activity is seen bouncing modestly in the Union and the US, while little improvement is seen in services output.

EUR/USD Short-Term Technical Outlook

The EUR/USD pair is trading a few pips above the mentioned low ahead of the Asian opening and at risk of extending its decline. Not only it has settled below the 1.1065 static resistance level, but the 4-hour chart shows that it plummeted after repeatedly failing to advance beyond a bearish 20 SMA. This last keeps heading lower below the larger ones. Technical indicators, in the meantime, head firmly lower, with the RSI in oversold levels. The next relevant support is 1.0980, a low from late November, with a break below it exposing 2019 low at 1.0878.

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