EUR/USD Forecast: Dead cat bounce ahead of an escalation in trade wars
|- The EUR/USD is attempting to rise in the wake of the new week.
- Concerns about the US intentions to slap China with new tariffs are prevalent.
- The technical picture shows the pair is in a tight spot.
The EUR/USD is trading just above 1.1600, marginally higher on the day. Purchasing managers' indices for the manufacturing sector mostly missed expectations with downgrades for Germany and France, a disappointing Italian figure and a positive surprise only for Spain.
The pair dropped sharply on Friday, the last day of August. Markets are awaiting the US decision on new tariffs on China. The deadline for public comments is on Thursday, September 6th. President Donald Trump clarified that he wants the new duties to come into force as soon as possible.
The new duties are of a large scale: on $200 billion of Chinese goods, four times the current amount. China will be unable to match the same size of tariffs. It intends to retaliate with levies on $60 billion of US goods and may opt for additional measures such as curbing US companies' activities.
The fear of these new tariffs weighs on markets, and the risk-off atmosphere sends the US Dollar higher. The US is on holiday today, enjoying Labor Day. This may affect liquidity but does not mean any headlines from Trump or any other Administration official. A mix of low liquidity and significant news could trigger volatility.
More: Trade wars: $200 billion is serious, 3 scenarios and currency reactions for the upcoming escalation
Jens Weidmann, the President of the German Bundesbank, will speak later in the day.
EUR/USD Technical Analysis
The EUR/USD is sandwiched between the 50 and the 200 Simple Moving Averages on the four-hour chart. The 200 one provides support and coincides with the lows seen on Friday at 1.1580. The 50 SMA nearly meets 1.1640 which was a temporary support line last week.
Momentum and the Relative Strength Index lean lower.
Below 1.1580 we find 1.1530 which provided support to the pair on August 23rd. Lower, 1.1490 was a swing low earlier in the month. 1.1440 capped the EUR/USD earlier in mid-August.
Above 1.1640 we see 1.1695 which held the pair down late last week. Further above, the peak of 1.1735 seen previous week is closely followed by the quadruple top of 1.1750.
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