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  • EUR/USD established a bearish lower high near 1.11 last week.  
  • A drop to 1.10 looks likely courtest of trade tensions.
  • The psychological support will likely be breached if the German IFO – Expectations (Nov) prints below estimates.  

EUR/USD is looking south and will likely drop below 1.10 on Monday if the German IFO data misses expectations.

Notably, the common currency fell from 1.1058 to 1.1014 on Friday, confirming a lower high at 1.1097, courtesy of the mixed German PMIs and the dismal Eurozone PMIs. European Central Bank’s President Christine Lagarde said the global economic uncertainty is high and called for fiscal boost, as expected.

The newly established lower highs setup has opened the doors for a retest of 1.10. The case for a drop to the psychological support looks stronger if we take into account the fading US-China trade optimism. Reports hit the wires during the Asian session that the phase two of the US-China trade deal is less likely to happen anytime soon, given the two sides are struggling to ratify the phase one of the trade deal.   Note that the German economy has paid a heavy price for  the year-long trade tensions.

Further, the dollar side of the story is looking strong, courtesy of Friday’s better-than-expected U.S. Markit PMIs and an upward revision to the University of Michigan consumer sentiment.

All-in-all, there is little reason for the EUR traders to put a bid under the single currency on Monday and the support at 1.10 will likely be breached if the German IFOs, scheduled for release at 09:00 GMT, print below estimates, underlining the need for more stimulus.

That German economy is facing recession risk is generally accepted by now. Therefore, the forward-looking IFO – Expectations (Nov) index will take precedence over the Business Climate and the Current Assessment number. The Expectation index is seen printing at 92.5 versus 91.5 in October. An above-forecast reading could put a floor under the EUR.

Technical levels