- EUR/USD has dropped below the horizontal trading range.
- Worsening outlook in Germany seems to be weighing on the shared currency.
- Additional losses are likely in case buyers fail to defend 1.1600.
Signs of a worsening economic outlook in Europe's largest economy have reminded investors of the shared currency's vulnerability and the EUR/USD pair has dropped to a fresh weekly low around 1.1600.
Germany's Bundesbank revealed in its monthly report that the full-year growth of the German economy was now expected to be "significantly below" the June forecast of 3.7%. German central bank further noted that the economic activity in the last quarter of the year would contract due to persistent supply chain issues and the loss of momentum in the service sector. Additionally, the IFO survey showed that the business sentiment in Germany continued to deteriorate in October.
Similarly, European Central Bank (ECB) Governing Council member and Spanish central bank chief Pablo Hernandez de Cos said that the recent developments were pointing to a significant downward economic outlook revision for 2021.
The ECB will release its Monetary Policy Decision Statement on Thursday and it is likely to reassure markets that the loose policy will remain intact well into next year. Unless the ECB delivers a surprisingly hawkish message, the common currency will continue to have a difficult time outperforming its rivals, especially the dollar.
September New Home Sales and the Conference Board's October Consumer Confidence data will be featured in the US economic docket on Tuesday.
Conference Board Consumer Confidence October Preview: Watch what we do...
Nevertheless, it wouldn't be surprising to see a muted reaction to Tuesday's data releases with market participants staying on the sidelines ahead of key events. Until then, technical levels are likely to provide short-term trading opportunities.
EUR/USD technical analysis
On the four-hour chart, EUR/USD seems to have broken the ascending trend line coming from mid-October. Additionally, the Relative Strength Index (RSI) indicator on the same chart dropped below 50, confirming the bearish shift in the near-term outlook.
Currently, EUR/USD is testing the 100-period SMA at 1.1600 and a daily close below that level could open the door for additional losses toward 1.1570 (static level) and 1.1525 (2021 low).
On the other hand, 1.1620 (Fibonacci 23.6% retracement September downtrend, 50-period SMA) aligns as the initial resistance before 1.1650 (200-period SMA) and 1.1670 (Fibonacci 38.2% retracement).
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