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EURUSD appears to have slowed slightly – with the development of an inverted hammer pattern – ahead of the April 2017 gap of 1.0820 – 1.0777 following a descent, which deflected off the 50-day simple moving average (SMA) around 1.1095.

The short-term oscillators, although still negative, are showing a marginal increase in positive momentum. The MACD is deep in the negative region and below its red trigger line, though smoothing slightly, while the RSI has made a minor improvement in the oversold territory. That said, the nearing bearish cross of the 100-day SMA by the 50-day one and the distancing of the downward sloping Tenkan-sen from the blue Kijun-sen line, all suggest, that maybe the downward move may endure a while longer.

To the downside, immediate support could come from the April 2017 gap from 1.0820 to 1.0777, which also encapsulates the 1.0793 level, this being the 123.6% Fibonacci extension of the up leg from 1.0878 to 1.1238. A successful dive beneath this barrier could encounter the 138.2% Fibo extension of 1.0741 and if the bears persist, the 161.8% Fibo extension at 1.0655 may be next to draw traders’ attention.

Otherwise, if buying interest picks up, initial resistance could come from the 1.0878 level from October 2019 ahead of a limiting region from 1.0925 to 1.0940. Overrunning this, the 1.0991 inside swing low could deter the pair from testing the area of the upcoming bearish cross of the 50- and 100-day SMAs currently around 1.1058. Clearing this too, the 1.1095 high and the 200-day SMA at the Ichimoku cloud, may prove difficult to surpass.

Overall, in the very short-term, the market is strongly bearish if the pair remains below the 1.0878 low, while a move back above this level could turn it back to neutral.

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The dollar was mixed against developed-market peers in early trading on Monday after hitting a new four-month high in overnight trading.

The greenback was also a touch weaker against the Chinese yuan after the People’s Bank of China added to its already extensive stimulus measures since the outbreak of the Covid-19 virus in cutting its medium-term financing rate to a new record low.

The measures reflated Chinese asset markets still further, leaving the benchmark stock index where it was before the New Year holiday, but have done little to lift the uncertainty over the path of the Chinese economy as it struggles with the virus outbreak.

By 3:40 AM ET (0840 GMT), the dollar index, which tracks the dollar against half a dozen developed-market currencies, was at 99.007, thanks largely to gains against the Japanese yen in the wake of data showing that the Japanese economy shrunk at an annual pace of 6.3% in the fourth quarter.

That number was far worse than the 3.7% drop expected and came after a hike in the country’s consumption tax in October.

"Annualization always exaggerates trends," said UBS Wealth Management chief economist Paul Donovan on a morning briefing, noting the one-off hits from a sales tax increase in October and a subsequent typhoon.

By 3:45 AM ET, USD/JPY was at 109.86, up 0.1%. The dollar was also a touch stronger against Sterling at $1.3029, while EUR/USD edged up from last week’s lows to $1.0838.

Trading is expected to be relatively quiet on Monday, not just because of the U.S. President’s Day holiday, but also because of key business sentiment surveys later in the week. ‘Flash’ purchasing managers indices from IHS Markit are due on Friday.

Nordea analyst Martin Enlund argued in a note at the weekend that the euro may be close to its near-term lows.

“Hard data looks terrible in Germany, but maybe we shouldn’t care too much about it?” Enlund wrote, adding that the usually-reliable Ifo survey “suggests that we are close to peak negativity around German hard data.”

However, he acknowledged a risk that the euro’s decline could prompt further U.S. tariffs from President Donald Trump, an action that could stop any euro turnaround in its tracks.

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The Euro Pound Sterling (EUR/GBP) exchange rate remained flat, leaving the pairing trading at around £0.8315.

The single currency was left under pressure at the start of the week as worries about weakening Eurozone growth weighed on the currency.

The new threat to the global economy, Covid-19 continued to weigh on markets, with Eurozone investors fearing the bloc will be dragged into a recession.

Added to this, the German economy stagnated in the final quarter of 2019, which saw renewed fears of a recession.Added to this, at the end of last week’s session, EUR hit a 33-month low against the US Dollar (USD). Since the start of January, EUR has slumped by around 2.3%.

Sterling (GBP) Flat as UK and EU Will ‘Rip Each Other Apart’

Last week, the Pound remained under pressure as traders fretted about the future trade relationship between the UK and European Union.

On Sunday, France warned the UK to expect a battle with the bloc in post-Brexit trade talks, dampening GBP sentiment.

The country’s Foreign Minister, Jean-Yves Le Drian said the two sides would ‘rip each other apart’.

He also added that the UK’s goal to achieve a free trade deal by the end of 2020 would be tough.

Euro Pound Outlook: Will Strong UK Labour Market Buoy GBP?

Looking ahead to Tuesday, the Pound (GBP) could rise against the Euro (EUR) following the release of UK labour market statistics.

If December’s unemployment remains at current lows, and wage growth rises higher than expected, GBP will jump.

Meanwhile, disappointing German data could send the single currency lower.

If Germany’s ZEW economic sentiment index falls further than expected in February, the Euro Pound (EUR/GBP) exchange rate will slump.

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The yen traded slightly lower on Monday in Asia after Japan reported a much deeper economic contraction than expected.

The USD/JPY pair inched up 0.1% 109.81 after the Cabinet Office reported today that Japan’s GDP in the December quarter fell an annualized 6.3%, faster than the expected 3.7% contraction.

The drop, which followed a revised 0.5% gain in July-September, was the biggest since a 7.4% decline marked in April-June 2014.

Meanwhile, the USD/CNY pair fell 0.2% to 6.9760

On Sunday, China reported 1,933 new confirmed cases of the coronavirus, down from 2,009 the previous day, and 100 new deaths, down one from 142 the previous day.

The economic impact of the epidemic is still unknown. Some analysts have estimated that China's annual growth could slow to between 4% and 5%, down from the 6% annual growth estimated by the government.

The AUD/USD pair gained 0.2% to 0.6727.

The GBP/USD pair was near flat at 1.3043. The U.K. will release a slew of data this week, including the December jobs report and the latest inflation figures.

Reports on retail sales, manufacturing and services PMI data for February are also due.

The EUR/USD pair traded 0.1% higher to 1.0838. The euro fell to its lowest level against the U.S. dollar since April 2017 last Friday after Germany, the eurozone’s largest economy, reported that GDP growth stagnated at the end of 2019. The European Central Bank is scheduled to publish the minutes of its January meeting on Thursday.

The U.S. dollar index inched up 0.1% to 99.037. Financial markets on stateside will be closed on Monday for Presidents Day.

The Federal Reserve is due to release the minutes of its January meeting on Wednesday. There are also several Fed policymakers scheduled to speak during the week, including Minneapolis Fed President Neel Kashkari, Dallas 

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