Euro Forecast Remains Bearish: Germany Enters Recession

Euro Forecast Remains Bearish: Germany Enters Recession

The euro experienced a decline on Thursday as Germany, the largest economy in Europe, officially entered a recession. This development has added to the negative outlook for the euro. The EUR/USD pair dropped to a two-month low, reflecting the increasing influence of bearish sentiments in the market. The euro forecast continues to suggest a bearish outlook for the currency.

The Federal Reserve attributes the strengthening of the dollar to expectations that would maintain a hawkish stance. Simultaneously, the US debt ceiling remains under lingering uncertainty. These factors, combined with reports of Germany’s recession in the first quarter of 2023, further weighed down the single currency, creating a negative outlook.

Factors Contributing to Bearish Momentum

Technical indicators reveal the emergence of fresh bearish momentum, with a breakthrough below the pivotal Fibo support level at 0.7374. The daily close below this level confirms the bearish signal and paves the way for potential targets at 1.0700/1.0652, which encompasses the psychological level and the 76.4% Fibonacci retracement.

Bearish signals are under reinforcement by rising bearish momentum. Besides, the presence of a thickening daily cloud is above the price. However, these signals may be offset to some extent by conflicting indications from deeply oversold stochastic indicators.

Although consolidation periods may offer temporary respite, the overall picture remains bearish. Fundamentally, the euro faced negative headwinds. Therefore, any upward movements might be limited below the key resistance zone at 1.0800. That is definitely encompassing the daily cloud top and affecting the 10-day moving average fall.

Asian Market: Potential Targets and Key Levels to Watch

According to SocGen, a sharp decline in EUR/USD could occur if the 1.07 support level. Meanwhile, USD/JPY could experience an upward spike if it breaks the 140 level. Experts suggest that shorting EUR/JPY appears to be a more favorable trade compared to speculating on potential reversals in other currency pairs.

The ongoing concerns about Chinese data and the rising USD/CNH exchange rate continue to exert pressure on the Canadian dollar (CAD), Australian dollar (AUD), and New Zealand dollar (NZD). Among these, CAD is the only currency that may have some slight buying potential.

It is important to note that the risk of the United States defaulting on its debt is not currently a realistic scenario. The global concern surrounding the US debt negotiations has put pressure on international stock markets while paradoxically strengthening the US dollar as it maintains its status as a safe-haven currency.

Cautious Approach and Euro Forecast

Considering the geopolitical landscape, it is highly unlikely that the US would face bankruptcy while Russia remains relatively stable.  After imposing severe sanctions on the Russian economy, the ongoing conflicts still had no power over the US economy.

Market behavior aligns with these thoughts, as the US dollar maintains a mild upward momentum. The EUR/USD pair is currently down over 400 basis points from its recent high of 1.11. The decline indicates that both the euro and the US dollar may exhibit signs of fatigue. This observation supports the Euro forecast, suggesting a cautious approach and focusing on positions that favor the European currency. With the ongoing market dynamics and the Euro’s strong market loyalty, it is important to assess the potential for a shift in market sentiment and adjust strategies accordingly.

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