- EUR/USD is looking south, having dived out of a bear flag on Monday.
- The flag breakdown has opened the doors to 1.0925.
- Key support could come into play if German IFO indices miss estimates, bolstering recession fears.
EUR/USD will likely drop to key support of 1.0925, as suggested by technical charts if the German IFO data due at 08:00 GMT disappoints expectations.
Flag breakdown
The common currency took a beating on Monday, courtesy of the horribly weak German Manufacturing PMI and the resulting fears of an all-out German recession.
Notably, the pair fell to a low of 1.0966 and closed at 1.0993, confirming a bear flag breakdown on the daily line chart. The bearish continuation pattern has opened the doors for a drop to 1.0925 – the low hit on Sept. 3 and Sept. 12.
Focus on IFO readings
The IFO’s Current Assessment (Sep) index is expected to print at 97.0 versus 97.3 in August. The Business Climate index is seen printing at 94.5 versus 94.3 in August and the Expectations index is forecasted to tick slightly higher to 91.8 from 91.3.
With preliminary PMI’s hitting decade lows, the probability of the IFO Expectations index missing estimates is high. That would only boost the German recession fears, leading to a deeper drop in the common currency, as called by the bear flag breakdown.
The EUR may pick up a bid if the IFO readings beat estimates by a big margin. The outlook, however, would turn bullish only above the trendline falling from June 24 and Aug. 12 highs. As of writing, the pair is trading at 1.0991.
Technical levels
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