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Following a 100 pips decline on Thursday, the EUR/USD is closing its second negative day in row. In the last two days, the pair dropped 200 pips from a Wednesday high at $1.3430. Since February's first top, theEuro has lost 5 cents against the U.S. dollar from $1.3710 to the current $1.3190. So, are markets trading the euro on bearish mode?

The EUR/USD extended its decline on Thursday amid renewed signs the eurozone economy is struggling after the region's PMI came in lower than expected. Besides, the U.S. dollar remains underpinned expectations the Fed may stop providing monetary stimulus after Wednesday's FOMC minutes.

Fundamentals in the U.S. didn't help the environment. Bad Jobless and Philly Fed Manufacturing data hurt risk appetite, with the Greenback rising on its safe haven status and the euro, Canadian dollar and U.S. equities weakening. The Philly Fed Manufacturing index was the biggest bad news as the February figures posted an unexpected decline to -12.5 from -5.8 in January. Markets awaited an improvement to 1.0 points in the second month of the year.

The soft tone is still weighting on the single currency, losing the $1.3200 handle and sliding back to the lowest level since January 10th at $1.3160. The EUR/USD managed to recover some ground, but the pair is closing the day below the $1.3200 mark. As for the short term, on the downside, next supports are seen at $1.3166 (intraday low), $1.3110 (100-day SMA) and the $1.3070 zone (a 38.2% retracement of the $1.2041/$1.3710 rally). On the upside, resistances could be found at $1.3230, $1.3250 (intraday level) and $1.3290 (intraday high).

Elsewhere, the pound fell to a 2 ½-year low versus the greenback, although it managed to trim losses, while the yen strengthened, dragging USD/JPY below the 93.00 mark. The USD/CAD rose to test the $1.0200 resistance, highest since July 2012. Stocks and oil are broadly lower on risk aversion, gold advanced slightly.

Euro falls below trendline support

The EUR/USD broke below the $1.3200 psychological level, and more importantly below an ascendant trendline coming off July 2012 lows, turning the immediate term and longer term bearish for the cross. The close below this level would reinforce the bearish perspective with $1.3110 as the next target (100-day SMA) ahead of the $1.3070 zone (38.2% retracement of the $1.2041/$1.3710 rally).

According to TD Securities. "Weak data in Europe, modestly wider peripheral spreads and less supportive EZ/US short-term yield spreads support the soft undertone in the EUR near-term (test of the low $1.31 area likely)", wrote analysts Shaun Osborne and Greg Moore, suggesting a potential slide in EUR/USD to the $1.28/$1.29 area.

Danske Bank sees EUR/USD potential downside in the short term. Morten Helt, Senior Analyst at Danske Bank, believes that it is still too soon to call an end to the recent euro upside, however, "In the near term, EUR/USD risks are probably skewed to the downside as i) speculation of an early exit from QE, ii) the automatic spending cuts, the so-called sequester, kicks in on 1 March and iii) the threat of a potential government shutdown by 27 March are factors that are likely to reduce investor's risk appetite and weigh on EUR/USD", concludes the expert.

In this line, analysts at BofA Merrill Lynch suggested, "The reasons for the dollar's appreciation are mostly positive and suggest it may be embarking on a strong secular uptrend. Absent a crash in the U.S. bond market, our house view remains very constructive on the USD".

On the other side, Bank of Tokyo Mitsubishi UFJ analysts believe that EUR/USD has a neutral outlook for the week ahead and looks to trade within a range between $1.2950-$1.3450. BTMU believes that the currency has been undermined by leading indicators signaling that the eurozone economy likely remained in recession in Q1.

The Friday Ahead

As we move towards the last trading day of the week, the single currency would remain in the limelight. Friday's calendar kicks in with German final Q4 GDP figures, followed by Italian inflation figures ahead of the German IFO series. A gauge of the Italian Consumer Confidence would follow, preceding the European Commission Growth Forecasts, with Italian Retail Sales closing the euro docket.

In America, Canadian CPI and retail sales will add the point of salt in a market without main U.S. data releases.

- German GDP (February 22 07:00 GMT)

- German IFO - Business Climate (February 22 09:00 GMT)

- Canadian Consumer Price Index (February 22 13:30 GMT)

Source: EUR/USD Closes Below $1.3200; Bears In Command?