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EURUSD Falls Victim to Coronavirus Scare; German Ifo Misses Forecast


Just like the rest of the major currencies, the euro fell victim to market sentiment on Friday. EURUSD dropped from its intraday high of 1.1061 to close the day at 1.1024. It was down 26 pips for the day despite a generally-positive roster of PMI reports from the euro zone.

Positive PMI Reports from the Euro Zone Failed to Boost the Euro

Out of the six reports that came out of the region pn Friday, only two missed forecasts. The French services PMI for December was lower at 51.7, than the 52.2 forecast. The euro zone-wide version of the report also fell short of expectations at 52.9 when it printed at 52.2.

On the other hand, the French and euro zone-wide manufacturing PMIs topped their respective forecasts. The French manufacturing sector continued to expand during the month with the reading at 51.0, up from 50.4 the previous month, and higher than the 50.6 consensus. Meanwhile, the euro zone manufacturing PMI printed at 47.8 which also topped the 46.9 forecast.

As for Germany, its services PMI was higher at 54.2 than its 53.0 estimate. Its manufacturing PMI also came in better at 45.2 than the 44.5 consensus.

Coronavirus Scare Trumps Positive PMIs

However, news of the coronavirus infecting close to 2,800 people weighed heavily on sentiment. China as implemented drastic measures like imposing a travel ban on 9 Chinese cities and cancelling mass celebrations during the Lunar New Year. However, it has not been enough to contain investor fears.

German Ifo Business Climate Report Misses Forecast

A few minutes ago, the German Ifo Business Climate report for January was released. It printed at 95.9 versus the 97.1 forecast. This figure is slightly lower than the December reading at 96.3, suggesting that entrepreneurs grew less optimistic on economic conditions this month.

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EURUSD Outlook

On the daily time frame, we can see that the head and shoulders chart pattern played out perfectly.  After falling below neckline support around 1.1085, EURUSD steadily dropped. It still has some more room to move lower to near-term support at the 1.1000 psychological handle.

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Zooming in to the 1-hour chart, the currency pair looks to have formed a bearish flag pattern. This is characterized by a consolidation that follows after a sharp drop. If there are enough sellers to sustain the break below Friday’s low at 1.1019 could mean that EURUSD could soon drop to 1.1000. If support does not hold at that level, we could even see the pair fall to its October 2019 low around 1.0900.

On the other hand, a bullish close above today’s highs at around 1.1036 may invalidate the bearish chart pattern. We could, instead, see EURUSD rally to near-term resistance 1.1065. This price may serve as a ceiling because it coincides with the 100 SMA and the falling trend line (from connecting the highs of January 21 and January 23).More content