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Euro: Downside Risks Prevail

Summary

EUR/USD turned negative on Tuesday following timid recovery attempts at the start of the trading week.

The dollar demand picked up against the risk-off tone in the global markets as the US said it was planning to request the extradition of the Huawei CFO from Canada.

Against this backdrop, the pair has a potential for further declineб particularly as the RSI is not yet showing oversold conditions.

  EUR/USD turned negative on Tuesday following timid recovery attempts at the start of the trading week. The euro is pressured by a sell-off in risky assets amid the signs of rising tensions between the US and China as well as ahead of the World Economic Forum in Davos, where the attendees could express concerns over the global growth.

  The dollar demand picked up against the risk-off tone in the global markets as the US said it was planning to request the extradition of the Huawei CFO from Canada. Apart from that, the European Commission has lowered Italy's growth forecasts quite dramatically, while the upcoming ECB meeting only adds fuel to the fire as investors expect that Draghi will highlight economic risks in the region and will push back market expectations of the first rate hike in eight years.

  Against this backdrop, the pair has a potential for further declineб particularly as the RSI is not yet showing oversold conditions. Today, the price has derailed the intermediate support at 1.1350 for the first time since January 4, which makes the 1.13 threshold vulnerable. Considering the signs of slowing Eurozone growth, there are downside risks for the common currency in the longer term as well.