EUR/USD Forecast: Brexit optimism gives, Trump can take it all away

The EUR/USD is trading above 1.1600, holding onto some of the gains recorded on Wednesday. Reports about a breakthrough in Brexit talks sent the Pound shooting higher, and the Euro also took advantage of the move to top 1.1600. 

According to a report by Bloomberg, the UK and Germany agreed to focus on a smooth Brexit transition and refrain from diving into details regarding the long-term relationship. The story about this can-kicking exercise was later denied by the German government, but the pair held onto most of its gains.

Also, the US Dollar lost a bit of ground. Emerging markets remain a concern with Argentina negotiating with the IMF and Turkey still suffering from a weak Lira. Nevertheless, the lack of new developments triggered some profit-taking.

Things may change today, the deadline for receiving public comments on new US tariffs on China. The Administration plans to slap the world's second-largest economy with new duties on $200 billion worth of Chinese goods, a severe escalation. So far, levies amounted to $50 billion, and China has responded in kind. This time, China will not be able to match these tariffs and will it is set to enact levies worth $60 billion of US goods and may add other measures.

US President Donald Trump said he wants the new duties to come into effect as soon as possible, but nothing is fully priced in. Here is how to trade it:

Trade wars: $200 billion is serious, 3 scenarios and currency reactions for the upcoming escalation

The trade story will likely lead market movements but there are also a few top-tier US figures that may have their say and influence expectations for tomorrow's Non-Farm Payrolls report. The ADP Non-Farm Payrolls is projected to show a small drop while the ISM Non-Manufacturing PMI is expected to move higher. 

See: ADP NFP + ISM Non-Manufacturing Preview: Data are indicative not only for the NFP

Here is how to trade the ADP report and here is how to trade the ISM one.

German Factory Orders disappointed with a drop of 0.9% in July, contrary to expectations for an increase. The data point is volatile. 

EUR/USD Technical Analysis

The EUR/USD is trading slightly higher but at familiar levels. The Relative Strength Index on the four-hour chart is balanced, and Momentum turned somewhat positive. A pair is trading between the 50 and 200 Simple Moving Averages. What we do see is a downtrend resistance line that caps the EUR/USD. This line began last week.

1.1630 capped the EUR/USD early in the week and remains of interest. Some support awaits at 1.1580 which provided support to the pair late last week. Lower, 1.1530 is already a substantial level after halting the pair's decline twice: a double bottom. 1.1495, 1.1365 and 1.1300 are next down the line.

Looking up, 1.1660 was a swing high on Wednesday. It is followed by the cap of 1.1695 seen on Friday and followed by the high point of 1.1735 seen early last week.

More: EUR/USD to 1.1738 or to 1.1550? The battle lines are drawn – Confluence Detector