EUR/USD analysis: Dollar smashed by US political turbulence

Valeria Bednarik FXStreet

EUR/USD Current price: 1.2410

US Secretary Mnuchin nailed the dollar's coffin by celebrating a weaker USD.
ECB's meeting up next: no changes expected but Draghi expected to express concerns about stronger EUR.

The EUR/USD pair up roared to a fresh multi-year of 1.2411 during US trading hours, as the greenback got smashed by US political turbulence. After a three-day Government shutdown, Trump announced a series of tariffs, aimed to protect American companies from cheap foreign exports, triggered Chinese "strong dissatisfaction" on words of the Chinese Commerce Ministry, although the measures affect the world's largest economy relationship with multiple trade partners. Trump's inclination toward protectionism is no news, but this is indeed is a strong measure that puts the USD one step further away from any chance of strengthening. US Treasury Secretary Mnuchin said that a weaker dollar is good for US trade, adding fuel to the fire.

This Wednesday, the release of the EU January preliminary Markit PMIs showed that the services sector started the year with a strong footing, beating expectations and leading to an over 11-year peak in the composite index for the region of 58.6, up from the previous 58.1. The manufacturing sector grew by less-than-expected according to the same report, but activity holds near record levels. In the US, the situation inverted, as the manufacturing index resulted at 55.5, beating expectations of 55.0, while the service sector lagged, with the index down to 53.3 from the previous 53.7, also below market's forecast. However, the worst surprise came from US Existing Home Sales that fell by 3.6% in December, against a 2.2% drop expected. Investors' attention this Thursday will center on the ECB's monetary policy meeting, with the bank largely expected to maintain the status-quo and attempt to control somehow EUR's strength.

The technical picture is bullish ahead of Asian opening, with the pair holding near the mentioned multi-year high, and despite extreme overbought readings and the upcoming risk event. The 4 hours chart shows that the price has moved well above a now bullish 20 SMA, while technical indicators have reached overbought territory before losing upward strength, anyway consolidating, far from signaling a possible correction ahead. Higher highs are likely for the upcoming sessions, with 1.2460 becoming a possible short-term target. Profit-taking ahead of ECB's meeting is not out of question for late Asia/early Europe.

Support levels: 1.2370 1.2325 1.2280

Resistance levels: 1.2425 1.2460 1.2500

View Live Chart for the EUR/USD

Author

Valeria Bednarik

FXStreet

Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.

GBP/USD remains in two-day highs around 1.3260

GBP/USD adds to Friday’s bounce, gathering fresh traction and flirting with the 1.3270 zone on Monday, or two-day tops. Cable’s decent advance comes despite the move higher in the Greenback and investors’ assessing of UK PM K. Starmer's resignation.

EUR/USD remains close to three-month lows near 1.1450

EUR/USD sets aside Friday’s bounce and trades with modest losses in the mid-1.1400s at the beginning of the week. The continuation of the bid bias in the US Dollar continues to weigh on spot despite improving sentiment from the geopolitical front.

Gold bounces off lows, looks to surpass $4,200

Gold regains composure and leaves behind three-consecutive daily declines on Monday, looking to regain the area above the $4,200 mark per troy ounce. Reports of progress in the latest round of US-Iran talks are helping the precious metal maintain its footing at the start of the week, although the stronger Greenback seems to limit the upside potential for now.

Breaking: Iran closes the Strait of Hormuz amid ceasefire deal violation

Iran says it is closing the Strait of Hormuz after accusing the United States (US) and Israel of violating the ceasefire. According to Iran, the decision came over the continued Israeli strikes in Lebanon. The Iranian Revolutionary Guard Corps Navy issued a warning to all vessels: "Do not approach the Strait of Hormuz; otherwise, your security will be jeopardized."

Is Shiba Inu dead or just in a crisis? The data behind SHIB's 95% crash

SHIB, the dog-themed meme coin that became one of the biggest success stories in crypto and turned early buyers into crypto millionaires, is facing tough times. Its price has fallen more than 32% so far this year, and it is down 95% from its all-time high in 2021. Is SHIB simply another fading meme coin, or is the market overlooking a possible recovery story?

Regime change: Inside Kevin Warsh's first move to make the Fed unreadable on purpose

The rate did not move. That was the least interesting thing about Kevin Warsh's first meeting in charge of the Fed. The FOMC held its benchmark at 3.50%-3.75% for the fourth straight meeting, exactly as priced, and then the new chair used his first press conference to dismantle the machinery the market has leaned on for a decade.