EUR/USD Forecast: German political crisis and trade wars keeping it down

The EUR/USD is trading lower at the wake of the new week.
Germany's political crisis and concerns about trade weigh as the Sintra Symposium begins.
The technical picture remains bearish on the pair that is still out of oversold territory.

Yohay Elam FXStreet

The EUR/USD is trading below 1.1600, the area it had recovered to on Friday. The refugee crisis in Europe is taking its toll on the common currency.

German Chancellor Angela Merkel's CDU party is in a crisis with its sister Bavarian CSU party of migration. Interior Minister Horst Seehofer that leads the CSU wants the country to stop migrants that are being processed in other countries at the border, contrary Merkel's stance. The party faces regional elections in the autumn and is adopting a hardline stance to fend off the right-wing AfD party.

They want this change in policy to be approved ahead of the EU Summit toward the end of the month. If the crisis deteriorates, some speculate it could bring Germany's mainstream government down. However, Merkel and Seehofter could also find a compromise.

In broader markets, concerns about global trade sour the mood. The US announced tariffs on $50 billion worth of goods on China on Friday. China was then quick to announce counter tariffs. The tit-for-tat action comes after the G-7 Summit ended without a communique, in a move also related to trade. Stock markets were slow to react on Friday, but a stronger reaction could be seen now.

Also, the EUR/USD remains pressured by last week's strikingly different tones from central banks. The Federal Reserve raised interest rates, signaled two additional ones, and conveyed a message of optimism. Fed Chair Jerome Powell stated that the US economy is doing very well, among other hawkish signs.

On the other side of the Atlantic, the European Central Bank finally made a move towards the end of bond-buying, but wrapped it up with conditions, added a pledge to maintain low interest rates through the summer of 2019, and ECB President Mario Draghi sounded very cautious and stressed the conditionality of the move.

Draghi hosts a conference in Sintra, Portugal. He will deliver opening remarks today, but will probably make a significant speech only on Tuesday. Draghi, Powell, and others will participate in a panel discussion on Wednesday.

EUR/USD Technical Analysis - Bearish

EUR USD technical analysis chart June 18 2018

The EUR/USD is trading well under the 200-day Simple Moving Average and also under the 50-day one. The RSI is below 50 but above 30, indicating further falls while staying out of oversold territory.

The June 15th low of 1.1543 is an immediate line of support. The next one is the 2018 low of 1.1510. Below the round number of 1.150, we find 1.1480, an old level from July 2017.

Looking up, 1.1610 was a temporary support line on the way down. More importantly, 1.1650 served as support in early June and late May. 1.1730 served as a cushion for the pair before last week's collapse.

More: EUR/USD may find it hard to recapture 1.1600, and the road is open to 1.1493 – Confluence Detector

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

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