EURUSD Forecast – Introduction
The EURUSD is the most actively traded currency pair in the world.
This makes it a key focus for FX traders in the new year.
2018 ended on a weak note for Eurozone recovery and this reflected on the charts.
After staging a 2.60% rally in the first quarter. The EURUSD spent the remainder of the year selling off. Leading to a loss of 4.66% in 2018 amongst many of its G10 peers.
There are some positive drivers pointing to expansion in 2019 such as rising wage growth, employment as well as cheaper oil.
With that said, the fundamental risks for economic growth in the EU remain skewed to the downside.
To help you navigate through the tailwinds, we put together a EURUSD forecast for 2019.
Let’s take a look at the fundamental risks and technical levels that we believe will be in the spotlight for the Euro over the course of the year.
EURUSD Forecast – 3 Key Risks to the Euro in 2019
(1) EU Parliamentary Elections
The rise of populist parties and their implications for EU integration remain a key concern ahead of the upcoming parliamentary elections in May.
There is a real possibility that anti-EU parties could win enough seats to disrupt legislative business with ripple effects on other European institutions and national politics.
While these populist parties may record some gains. We don’t see the status quo changing enough to prevent pro-European parties from forming a majority and pursuing pro-EU politics.
In addition to these elections, the presidencies of the European Parliament, European Council, European Commission, and the ECB are also up for grabs!
This is a lot of political change at a crucial time especially when decisive action is required! The uncertainty surrounding these elections may weigh on the Euro into the second half of 2019.
(2) “No Deal” Brexit
The UK is set to exit the EU on March 29, 2019. Theresa May has until January 21st to send a Brexit deal to Parliament.
If the UK exits from the EU with no agreement, this will temporarily disrupt exports to the UK from countries within the Eurozone.
The implications of this could lead to slower growth out of the EU and potential weakness in the Euro.
There is little clarity on the terms of the UK-EU relationship after the UK leaves the bloc. This will continue to provide uncertainty for both the EURO and the BRITISH POUND into Q1 of 2019.
(3) US-EU Trade Tensions
Another risk to the Eurozone in 2019 is the potential for trade tensions to escalate between the United States and the EU.
Trump is floating the idea of imposing 25% tariffs on European auto imports.
Since the US currently accounts for about 14% of German and 21% of UK car exports, this will likely cause economic damage to the EU and German growth for 2019.
EURUSD Forecast – A Technical Breakdown
You have now been caught up with the important risks for the Euro in the next year.
Let’s dive into the charts now to see what the market is telling us.
We start our analysis on the monthly .chart. This timeframe helps us get an understanding of the macro trends at play in a market. We also identify key levels on the monthly which we can lean on for quality trades.
In the case of the EURUSD pair, we see that the macro trend in play is a bearish downtrend. The market is oscillating between lower lows and lower highs suggesting long-term weakness for the Euro against the US Dollar.
We also like to use the monthly timeframe to cut out the noise and find key levels that have previously held as both support and resistance.
The key monthly resistance level for the next year is $1.25000. While the 2015 lows at $1.05000 will be a target for the bears.
Weekly Timeframe – Technical Perspective
From a technical perspective, the weekly timeframe confirms the overall bearish sentiment from the monthly timeframe.
Price is currently below all three moving averages (20-50-200 period). The averages themselves are opening up to the downside indicating further weakness may be expected in 2019.
The sellers are currently in control of this market and the bulls have their work cut out for them if they are to stage any significant bid in the EURO.
Overhead resistance from all three moving averages sits right above current prices so the market may very well pull back into the 50 &
Weekly Chart – Price Action Perspective
Looking at weekly price action, this market is in a clear downtrend, printing lower lows and lower highs.
At the moment, however, we are arguably in a consolidation phase.
This makes sense as there is uncertainty surrounding the Euro with the impending European parliamentary elections, Brexit and potential trade tensions with the US,
Daily Chart – Technical Perspective
From a technical
The market is currently trading below the 200-day moving average but above it’s 20 and 50-day moving averages. This signals a market that is in a consolidation within a trend.
We look to the 200-day moving average to act as a potential ceiling as it currently sits around $1.15800 which is within 100 pips of the current price.
If the buyers are able to sustain a breakout above this level then we might see a transition of market sentiment to the bull side.
Alternatively, if the sellers are able to defend this level, we may see this pair rollover to retest recent lows and continue the bear trend.
Daily Chart – Price Action Perspective
On the daily chart price action is stuck in a range. The ceiling of this range sits at $1.15340. While the current floor sits at the lows of $1.13000.
There was a stop raid below $1.13000 back in mid-November and the market quickly returned back above this level. It has held several rotations as support and has been acting as a temporary floor in the market over the last several weeks.
The next upside objective for this market is the weekly level at $1.15340 which should be a battle zone.
If the bulls win the battle. we may see this pair test the 200-day moving average and potentially continue into the weekly range highs at $1.18000 if buyers can sustain upside momentum. Strength above this level will likely result in a buy stop release into the monthly range high at $1.25000.
If the sellers step in to defend $1.15340 successfully, then we may see this pair roll over and attempt to retest its lows at $1.13000.
A breakdown below this level will open up the door for further downside into the monthly range lows at $1.05000.
EURUSD Forecast – Final Thoughts
The Eurozone has a fair share of political risk heading into 2019 which is likely to cause investor uncertainty and may weigh on the Euro.
The technicals confirm this and suggest further weakness for this pair, which is what we will watch for until the market tells us otherwise.
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