EUR/USD Downward Channel Continues to Play – Brace for a Sell Signal!

The EUR/USD pair traded sharply bearish to violate the support level of 1.2057 level and trade at 1.2044. It's now holding below 1.2057...

Arslan Butt•Wednesday, February 3, 2021•2 min read

The EUR/USD pair closed at 1.20431, after placing a high of 1.20876, and a low of 1.20113. The EUR/USD extended its losses, dropping for the second consecutive session on Tuesday, to its lowest level since December 1. The International Monetary Fund released its global growth estimates last week, stating that the outlook for the Eurozone had deteriorated. The Fund cut its growth expectations for the region by one percentage point to 4.2% for this year. The four largest economies in the Eurozone, namely Germany, France, Italy and Spain, all saw their growth estimates cut for 2021. According to ECB estimates, the Eurozone economy could have contracted by more than 7% in 2020.

Another factor is that although the vaccination programs began in late December, the rollout has been complicated across the region, with red tape, and issues surrounding supply and production, preventing faster distribution of the jabs, which has led to political squabbles within the bloc. The International Monetary Fund does not expect the Eurozone economy to return to the growth levels seen at the end of 2019, before the end of 2022. All these worries created by the coronavirus pandemic in the region weighed on the single currency Euro, dragging the EUR/USD pair to the downside on Tuesday.

On the data front, at 12:45 GMT, the French prelim CPI for January came in, indicating a rise to 0.2%, against the projected 0.0%, which supported the Euro and capped any further losses in the EUR/USD pair. At 13:00 GMT, the Spanish Unemployment Change figures for January were released, showing an increase to 76.2K, against the expected 35.3K, which weighed on the Euro and added to the losses in the EUR/USD pair. At 14:00 GMT, the Italian Prelim GDP for the quarter came in, remaining flat with the expectations of -2.0%. At 15:00 GMT, the Prelim Flash GDP for the quarter showed a drop to -0.7%, against the expected -0.9%, which supported the Euro and capped any further losses in the EUR/USD. From the US side, at 20:00 GMT, the IBD/TIPP Economic Optimism was released. It rose to 51.9, against the estimated 51.0, boosting the US dollar, and adding to the losses in the EUR/USD currency pair.

The European Commission is expected to tap the markets later this year, in search of 750 billion euros, distributed across the 27 EU nations. Additional stimulus means a decline in the single-currency Euro, and ultimately losses in the EUR/USD pair. On the US dollar front, the greenback was strong across the board, with the DXY at its highest level in 8 weeks, above the 91 mark, which weighed heavily on the EUR/USD pair on Tuesday.

Daily Technical Levels

Support Resistance

1.2026 1.2118

1.1994 1.2178

1.1934 1.2211

Pivot Point: 1.2086

Trading in the EUR/USD pair has been sharply bearish, violating the support level of 1.2057 to trade at 1.2044. It’s now holding below the 1.2057 support level, which has become resistance. Continuation of a bearish trend is likely to lead the EUR/USD further down, until the support area of 1.2009, and below this, the next support is likely to be found around 1.1919. Good luck!

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ABOUT THE AUTHOR See More

Arslan Butt

Index & Commodity Analyst

Arslan Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics. His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker. His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.