EUR/USD Analysis: Bulls seize control ahead of Trump's news conference on China

  • The euro remained well supported by the EU's proposed €750 billion virus recovery fund.
  • The upbeat market mood undermined the safe-haven USD and provided an additional boost.
  • Bulls seemed unaffected by concerns over a further escalation in the US-China tensions.

The EUR/USD pair prolonged this week's positive move and was being supported by a combination of factors. The shared currency continued to show strength on the back of the European Union Commission's proposed €750 billion coronavirus recovery fund. This coupled with the emergence of some fresh selling around the US dollar provided an additional boost to the major. Despite concerns about worsening US-China relations, the optimism over a potential COVID-19 vaccine remained supportive of the upbeat market mood and continued denting the greenback's relative safe-haven status.

The greenback remained depressed and failed to gain any respite from Thursday's mixed US economic releases. The US first-quarter GDP was revised lower to show a contraction of 5% as compared to 4.8% estimated earlier, while the Initial Weekly Jobless Claims came in at 2.12 million as against 2 million expected. Separately, Durable Goods Orders came in better than consensus estimates pointing to a decline of 19% and fell 17.2% in April, albeit failed to impress the USD bulls or stall the pair's strong intraday positive move beyond the very important 200-day SMA.

The pair gained traction for the fourth consecutive session on Friday and touched the 1.1100 mark for the first time since late-March amid sustained USD selling bias. The momentum seemed rather unaffected by the fact that China’s parliament on Thursday endorsed a national security law for Hong Kong, raising fears of a further escalation in diplomatic tensions between the world's two largest economies. Hence, Friday's key focus will be on a news conference by the US President Donald Trump regarding China's move to tighten control over the city of Hong Kong.

In the meantime, Friday's release of the German retail sales figures for April and the flash version of the May Eurozone CPI will be looked upon for some impetus. Later during the early North American session, a slew of US macro releases might influence the USD price dynamics and further contribute towards producing some meaningful trading opportunities on the last day of the week. The US economic docket highlights the release of Core PCE Price Index, Personal Income/Spending data and Goods Trade Balance figures, which will be followed by Chicago PMI and revised Michigan Consumer Sentiment Index.

Short-term technical outlook

From a technical perspective, the overnight sustained strength above the key 1.10 psychological mark and a subsequent move beyond 200-day SMA added credence to a bullish breakout through a near-term trading range.  With technical indicators on the daily chart still far from being in the overbought zone, the pair seems all set to extend the momentum further towards late-March swing highs resistance near the 1.1145-50 supply zone. This is closely followed by the 61.8% Fibonacci level of the 1.1497-1.0636 downfall, around the 1.1175 level, above which bulls are likely to aim for a move beyond the 1.1200 mark towards testing the next resistance near the 1.1225-30 area.

On the flip side, immediate support is now pegged near the 1.1075 level (50% Fibo. level), which if broken might prompt some profit-taking. However, the pullback might still be seen as a buying opportunity and help limit the slide near the 1.1020-15 region (200-DMA), around the trading range breakpoint.


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