EUR/USD Analysis: risk-off taking over on trade war escalation

Valeria Bednarik FXStreet

EUR/USD Current Price: 1.1143

Both the US and China announced increased tariffs last Friday.
US President Trump had “second thoughts” about everything but won’t retreat on China.
EUR/USD upward corrective movement meant to be short-lived.

The American Dollar sold off Friday, following US President Trump´s anger discharge on Twitter. The EUR/USD pair soared to 1.1152, its highest for the week, to finally settle at around 1.1140. Fed’s Chief, Jerome Powell, spoke within the Jackson Hole Symposium, saying that the US economy is in a good place, adding that policymakers will act as appropriate to sustain the expansion. He sounded less concerned about inflation, indicating that “it appears to be moving back up closer to our symmetric 2 percent objective, but there are concerns about a more prolonged shortfall," and more concerned about external developments, blaming slowing global growth and trade policy uncertainty for weighing on the economic outlook. Earlier in the day, China announced it´s planning new tariff rates of between 5% to 10% applied to about $75 billion worth of US goods, starting September 1, as retaliation to Trump’s tariffs. Both events triggered US President´s reaction, who initially tweeted: “Who is our bigger enemy, Fed Chairman Powell or Chinese President Xi?.” After the market closed, the US struck back by announcing that starting on October 1^st, the $250B of goods coming from China currently being taxed at 25%, will be taxed at 30%, while the remaining $300B of goods will now be taxed at 15% starting September 1^st.

Within the G-7 meeting that took place over the weekend, US President Trump said he is having “second thoughts” when asked about the escalation of the trade war, although he added that the escalation was necessary, given China’s unfair practices. Majors could start the week with large gaps, as the market hasn’t yet priced in Friday’s announcement and weekend developments. The macroeconomic calendar will include this Monday the German IFO Survey for August, and US Durable Goods Orders for July.

EUR/USD short-term technical outlook

The EUR/USD pair recovered up to the 50% retracement of its latest daily slide measured between 1.1249 and 1.1051, at 1.1150, to close the week a few pips above this last. In the daily chart, the pair settled around its 20 DMA, while the 100 and 200 DMA maintain their bearish slope far above the current level. The Momentum indicator lags, heading south within negative levels while the RSI indicator bounced from oversold readings, both within negative levels. In the 4 hours chart, the pair offers a bullish technical stance, as it settled well above a now flat 20 SMA and around the 100 SMA, while technical indicators settled at daily highs, at their highest in two weeks. The greenback is set to suffer at the weekly opening given the trade war developments, although the EUR may not be the best choice as the EU has its own jitters to deal with.

Support levels: 1.1110 1.1065 1.1020

Resistance levels: 1.1150 1.1185 1.1220

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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.

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