EUR/USD struck a 2-month low on Tuesday as expectations of slower growth, rising U.S. rates and technicals outweighed euro zone Q4 GDP numbers that were less weak than expected, suggesting it could soon break below 1.2000 and possibly set course toward 1.16.
Euro zone is still expected to fall sharply in Q1 nL8N2K82PQ, in contrast to expectations that fiscal stimulus could bolster U.S. growth.
Options investors are positioning for EUR/USD downside.
Large 1.2000 barrier options are a hurdle for EUR/USD bears but risk reversals EUR1MRR=FN show that vol premiums for EUR/USD puts over calls are increasing, indicating investors expect more downside.
Technicals highlight downside risks for EUR/USD.
A clean break of the 38.2% Fibo of the 1.1602-1.2349 rally has been made while daily and monthly RSIs imply downside momentum remains.
The 10-DMA is poised to cross below the 55-DMA, which will send an additional bearish signal.
Gains for China's yuan also benefit EUR/USD bears.
EUR/CNH has fallen sharply and trades at 2-1/2-month lows, adding bearish pressure to the euro.
Should EUR/USD break 1.2000 investors will begin targeting support near 1.1600.
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