EUR/USD: few follow-through gains beyond 1.10
|Friday’s positive expectations on a US-China trade truce supported a continuation of the risk rebound. The move was mainly visible in equities and in core yields. Initially, EUR/USD, USD/JPY and EUR/JPY joined the risk rally, but the move slowed later as a limited agreement was revealed. Especially EUR/USD reversed part of its earlier gains. The US-German interest rate differential also rewidened. EUR/USD finished at 1.1042 (1.1005 on Thursday). USD/JPY closed at 108.29 (from 107.98).
Overnight, Asian equities mostly show gains of 1%+ as investors try to make their view on the LT impact of the ‘trade agreement’. The yuan strengthens (USD/CNY 7.0550) even as China September import and export data disappointed. USD/JPY (108.30/35 area) maintains most of its recent gains. EUR/USD 1.1030) shows no clear trend. Japanese markets are closed.
Today, EMU August production is expected to rebound (0.3% M/M), but won’t change expectations on sluggish growth. Most US markets are closed in observance of the Columbus Day holiday. Investors obviously aren’t convinced that the US-China deal will remove uncertainty on global growth. So, the risk rebound might soon peter out. Amongst others, the focus will turn to the earnings season, Brexit and new incoming data.
Last week’s risk rebound helped EUR/USD to regain the 1.10 area.
However, the break didn’t trigger meaningful follow-through gains. An easing in the trade tensions might provide some comfort for the export-reliant EMU economy, but growth prospects will probably remain mediocre, at best. At the same time, it might also reduce the chance for further aggressive Fed easing. We look out whether EUR/USD can hold north of the 1.10 area. If so, it could signal a more neutral ST bias. However, we’re not convinced this will be the start of a protracted EUR/USD up-leg. 1.1110 is the next reference on the charts.
Sterling rallied further on Friday as markets saw the positive tone of Thursday’s meeting between UK PM Johnson and Irish PM Varadkar as raising the chance for a deal. EUR/GBP dropped to the 0.87 area. During the weekend, practical stumbling blocks regarding trade flows and on the Irish boarder resurfaced. Parties involved admit that still quite some work has to be done in the run-up to the EU summit. A final solution, if any, probably will only be reached last minute. In this context, further sterling gains might become more difficult.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.