EUR/USD Analysis: Remains well within a multi-week-old trading range
|- Reviving USD demand exerted some follow-through pressure on EUR/USD.
- Escalating US-China tensions benefitted the USD's relative safe-haven status.
- Traders eye German Q1 GDP print, IFO Survey for some meaningful impetus.
The EUR/USD pair witnessed some follow-through selling on Friday and extended the previous day's retracement slide from three-week tops, levels just above the key 1.10 psychological mark. China's proposal to impose new national security law on Hong Kong, followed by US President Donald Trump's warning that they would react very strongly against the attempt fueled concerns about worsening US-China relations. Escalating tensions between the world's two largest economies benefitted the US dollar's perceived safe-haven status and turned out to be one of the key factors that kept exerting some pressure on the major.
The shared currency was further pressured following the release of the ECB Minutes, which revealed the central bank's readiness to expand its easing measures at the upcoming policy meeting in June. Accounts of April 29-30 ECB monetary policy meeting indicated that policymakers judged that the scale of the stimulus was falling short of what was needed. The Governing Council is fully prepared to increase the size of the Pandemic Emergency Purchase Programme (PEPP) and use other tools to support the economy. The combination of negative factors pushed the pair back below the 1.0900 mark on the last trading day of the week.
The pair remained depressed below the mentioned level through the Asian session on Monday as market participants now look forward to the final version of the German Q1 GDP print for a fresh impetus. This coupled with the release of German IFO Survey results for May will influence sentiment surrounding the common currency and produce some meaningful trading opportunities on the first day of a new trading week. Meanwhile, relatively thin liquidity conditions on the back of Memorial Day holiday in the US might hold investors from placing any aggressive bets and lead to a subdued/range-bound trading action.
Short-term technical outlook
From a technical perspective, the pair last week once again faced rejection near the very important 200-day SMA. A subsequent slide below the 1.0900 mark points to the emergence of some fresh selling. Hence, some follow-through weakness, towards the 1.0845 horizontal support, now looks a distinct possibility. Some follow-through selling has the potential to drag the pair back towards the 1.0800 mark. This is closely followed by the lower end of a multi-week-old trading range support near the 1.0775 region. Failure to defend the mentioned support levels might be seen as a fresh trigger for bearish traders and turn the pair vulnerable to break below the 1.0700 mark. The momentum could further get extended and the pair seems more likely to head back towards retesting YTD lows, around the 1.0635 region.
On the flip side, any meaningful positive move back above the 1.0900 mark now seems to confront some fresh supply near the 1.0945-50 region. Bulls might then aim towards challenging the trading range resistance, around 1.0975 region, en-route the 1.1000 mark. A convincing break through the 200-day SMA, currently near the 1.1010-15 region, will negate any near-term bearish outlook and set the stage for a further near-term appreciating move. The pair might then aim towards reclaiming the 1.1100 round-figure mark with some intermediate resistance near the 1.1040-50 region.
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