- The EUR/USD is trading above the $1.1800 level, recovering after reaching yet another 2018 low.
- Rising US bond yields continue underpinning the US Dollar while EU leaders convene in Sofia.
- The technical picture still shows oversold conditions which support the pair.
The EUR/USD is trading higher around $1.1830 at the time of writing, nearly 70 pips above the new 2018 lows of $1.1763 set on Wednesday. The primary driver remains the US 10-Year Treasury yields which show no signs of letting up. The global benchmark hit a high of 3.12%, the highest in nearly seven years while yields of other maturities are at levels last seen in 2008 and 2009.
But while yields are going in only one direction, currencies are more complex. The Euro is recovering from the lows after members of the upcoming Italian government removed the idea of not paying debt worth €250 billion. The intentions of the League and the 5-Star Movement weighed heavily on the common currency, which is recovering after the idea was dismissed.
In the US, economic data plays a second or a third fiddle. US Building Permits and Housing Starts offset each other on Wednesday while Industrial Output came out slightly above expectations. Expectations for rate hikes, the growing funding needs of the US government and trade issues push bonds higher and support the greenback.
In the trade front, the EU is becoming uneasy with the latest American actions. A permanent exemption from steel and aluminum tariffs has yet to be granted to the EU by the Trump Administration. Moreover, Trump's abandonment of the Iran deal does not only separate both sides of the Atlantic politically but also economically. The US wants to impose secondary sanctions: prohibiting companies that do business with Iran to work in the US. Airbus, the giant airplane maker, sources some of its parts in the US. If it follows through with the deal to supply Iran with new aircraft, it will run into trouble in the US. There are more examples.
The EU is, therefore, considering imposing tariffs on the US in relation with the American moves on Iran. This deterioration may hurt all economies but the euro-zone is more vulnerable. Trade relations with the US will probably be high on the agenda of EU leaders as they meet today in Sofia, Bulgaria.
There are no significant data points in the euro-zone today. In the US, the Philly Fed Manufacturing Index for May will likely remain upbeat. They will be published alongside weekly jobless claims.
All in all, US bond yields are left, right, and center. Trade topic play second fiddle and data is left behind.
While the EUR/USD recovered from the Italian-induced lows, it has yet to respond to the fresh rise in yields. The USD/JPY has reached the highest levels since January and the EUR/USD could follow and fall.
EUR/USD Technical Analysis
The EUR/USD is still flirting with the oversold territory as the RSI is just under 30. On the other hand, Momentum remains to the downside and the pair is far below the 200-day Simple Moving Average.
The pair is battling the $1.1822 level which was the swing low on May 9th. The new 2018 low of $1.1763 follows and the late-2017 lows of $1.1715 are next.
$1.1915 was the January low and serves as resistance. The round $1.2000 looms above, and the last line to watch is the April 30th trough of $1.2055.
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