How Low Can the Euro Go?

How Low Can the Euro Go?

The euro is slipping lower in early trade on Friday, hitting a fresh 34 month low of $1.0828. EUR/USD has fallen in every session in February, bar one, where the gains were so small they're hardly worth mentioning. 

February so far EUR/USD has shed 2.2% of its value, extending losses of 1% from January.

German economy vs US economy
Today’s weakness comes following stagnation within the German economy. QoQ Europe’s largest economy recorded 0% growth. However, this is often just the tip of the iceberg, industrial production and factory orders are falling, the manufacturing sector remains deep in contraction and therefore the impact of coronavirus remains unknown but potentially hard hitting. Europe’s largest economy is already on its knees and there might be another kicking to return .
On the opposite hand, recent data from the US paints a solid picture of the US economy. Strong job creation, 3% wage growth and recovering manufacturing sector. Retail sales due for release later today are expected to point out strong consumption. 

ECB vs Fed
Given the deteriorating health of the Eurozone but particularly the German economy, rumors are circulating that the ECB could adopt a more dovish stance with more easing on the cards.
Hearing from Jerome Powell earlier within the week, the Fed’s assessment of the US economy continues to be cautiously optimistic. Jerome Powell sees the present expansion of the US economy continuing and current monetary policy appropriate.

Coronavirus
The extent of injury that coronavirus will inflict on the Chinese economy and therefore the spillover effect on the US or the German economy, is unknown. However, the German economy is primarily a producing , exporter economy. this suggests that it's more vulnerable than the US economy from a slowdown in China. Meanwhile the US dollar benefits from coronavirus fears due to its shelter status.

More downside to come?
Given the above assessment, it seems unlikely that the euro will start to select up meaningfully anytime soon. In fact, there appears to be more potential for further downside. it might take a sustained improvement in German and Eurozone data to ascertain any real move higher within the euro which looks to be how off.
Levels to observe 
“The trend is your friend”, “don’t attempt to catch a falling knife” these are all relevant here! EUR/USD trades below its 50,100 and 200 sma, with strong downward momentum. 
Immediate support are often seen at today’s low $1.0828 before EUR/USD looks towards $1.05. On the flip side resistance are often seen at $1.0870 (trend line resistance) before $1.0925 (trendline resistance and high 11th Feb).