EUR/USD Forecast: Euro stays in sideways trend as Draghi sees economy weaker than expected

• ECB President Mario Draghi said before the European Parliament that recent economic developments have been weaker than expected
• The sideways trend on EUR/USD is prevailing as currency pair remains below the short-term triangle structure.
• Regional Federal Reserve President of Dallas and Kansas City both confirmed the “patience” language introduced by the chairman Jerome Powell two weeks ago.
• German inflation remained stable at 1.7% y/y in December as oil prices weighed.

The EUR/USD is trading little changed on the downside at around 1.1400 on Wednesday as the trade optimism and the technical picture favors the greenback after the ECB President Mario Draghi acknowledged the worse-than-expected performance of the Eurozone economy in his European Parliament testimony on Tuesday.

The EUR/USD remains in the consolidation phase after flash move below 1.1500 last Friday with little reason for the currency pair to move amid lack of the macro drivers. With the US government shutdown continuing, the major data like retail sales report is delayed while scheduled events including import prices and Fed’s Beige book headline the economic calendar.

Regional Fed officials confirmed the “patience” language while talking about the outlook for the US monetary policy on Tuesday. Kansas City Federal Reserve Bank President Esther George and a voting member of the FOMC said that “it might be a good time to pause” on rate hikes while Dallas Federal Reserve President Robert Kaplan said that patience on interest rates should last at least a quarter or two, and should be a matter of "months" not weeks. Kaplan added that a call for patience does not necessarily mean the Fed should stop raising rates altogether.

While the macro data scheduled for Tuesday confirmed German inflation rising 1.7% over the year in December, the Brexit related events headline the day after the historic defeat of Theresa May’s Brexit deal in the House of Commons with Prime Minister facing a no-confidence vote in parliament today. Markets expect May to win the confidence vote as Conservatives are likely to avoid early elections at the time of low public popularity. 

Technically the EUR/USD broke from the consolidation triangle on the downside while it is still moving within a sideways trend. The slide lower in the EUR/USD reflects risk-off sentiment ruling the market amid the slowdown of the global economy with safe have currencies like the US Dollar benefitting. The broader sideways trend is prevailing with the short-term breakout from the triangle structure indicating further US Dollar strength. 

EUR/USD 30-minutes chart