EUR/USD Forecast - Prices, Charts, and Analysis

• Q3 revisions help Germany avoid a technical recession.
• Euro Area growth flatlines in Q4.

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The German economy missed slipping into a technical recession by the smallest of margins after the country’s Q3 GDP was upgraded to flat from -0.1%. The first look at German Q4 GDP came in line with market forecasts at -0.3%.

According to The Federal Statistical Office (Destatis),

‘The gross domestic product (GDP) fell by 0.3% in the fourth quarter of 2023 compared with the third quarter of 2023 after adjustment for price, seasonal and calendar variations. After the German economy more or less stagnated in the first three quarters, economic performance decreased in the fourth quarter of 2023. Compared with the previous quarter, there was a marked decline, in particular, in gross fixed capital formation in construction and in machinery and equipment after price, seasonal and calendar adjustment.’

The Euro Area also missed slipping into a recession after growth flatlined in Q4, beating forecasts of -0.1%, after the economy contracted by 0.1% in Q3.

The Euro is currently trying to stabilize around the 1.0825 level after touching a low of 1.0796 on Monday. The single currency has weakened since the end of last year as expectations that the ECB may cut interest rates earlier, and by more than originally expected, weigh on the Euro. According to the latest market forecasts, there is a 75% chance that the ECB will begin its rate-cutting cycle at the April 11th meeting and will force the Deposit Facility rate down to 2.50% by the end of the year from a current level of 4%.

Initial support for EUR/USD is seen at 1.0787 ahead of a cluster of prior lows down to 1.0724. EUR/USD is now below the 200-day simple average and if this remains the case then the above support levels are likely to be tested.

The latest Federal Reserve Monetary Policy decision will be released tomorrow and traders are hoping that Chair Powell will give at least a nod towards when the Fed will start cutting rates. Financial markets are currently pricing a 50/50 chance of a rate cut in March, while the May 1st meeting is now fully priced in.

EUR/USD Daily Chart

Charts Using TradingView

IG retail trader data show 55.69% of traders are net-long with the ratio of traders long to short at 1.26 to 1.The number of traders net-long is 3.86% higher than yesterday and 16.12% higher than last week, while the number of traders net-short is 0.63% higher than yesterday and 16.84% lower than last week.

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https://www.dailyfx.com/news/euro-eur-usd-pares-recent-losses-after-german-and-euro-area-q4-gdp-releases-20240130.html