Traders continue to digest a more cautious ECB stance. Investors are now pricing out hike expectations, citing the slowdown in the Eurozone economy. According to the official data, German GDP posted the weakest growth in five years in 2018, while the regional CPI fell to an eight-month low led by slower rise in energy prices.
As a result, the economic picture in the Eurozone looks really worrisome and further signs of weakness could push the euro down. But we should remember that there are three factors that could curb the potential selling pressure on the common currency. First, most negative signals have been priced in already and the euro is ready for delaying in hiking rates. Second, the dollar itself faces a softening stance by the Fed. Third, signs of progress in the US-China trade relations cap the dollar’s upside potential and support the euro as a high-yielding currency at the same time.
In the short term, EURUSD will likely proceed with a consolidation around the 1.14 handle. On the upside, the important resistance comes at 1.15, while the potential pressure will be capped in the 1.340 region.