EUR/USD Forecast: Leaning lower ahead of the next shot in the trade war

The EUR/USD is trading in the mid 1.15s, in a relatively limited range. The panel discussion that featured European Central Bank President Mario Draghi and Fed Chair Jerome Powell did not provide earth-shattering news as both influential central bankers repeated their messages. In general, the ECB is very cautious about moving to the exits while the Fed is very optimistic about the US economy. This drove the pair lower last week but did not affect yesterday.

Concerns about global trade continue grabbing the headlines. Markets fell sharply early in the week on the news that the US is considering slapping a 10% tariff on Chinese goods worth $200 billion. China said it would respond and stated that the move hurts the US economy. When markets dropped, the EUR/USD fell as well. However, the rout did not last for too long, and the pair stabilized.

This calm may not last for too long. The European Union also suffered Trump's strict approach when the US imposed tariffs on steel and aluminum early in the month. The EU is set to retaliate as early as Friday with duties on a relatively minuscule €2.8 billion worth of US goods. Nevertheless, every shot in the trade war has detrimental consequences. The US may respond swiftly. 

The scale of the tariffs imposed so far is modest, but the implications are broader. Daimler, the company behind Mercedes Benz, lowered forecasts for 2018 and put the finger on tariffs as the culprit for these lower forecasts after having enjoyed record profits earlier. There are other reports about postponing investments. 

Later today, the US publishes weekly jobless claims and the Philly Fed Manufacturing Index. See how to trade the event with EUR/USD. 

Also, the ECB publishes its Consumer Confidence measure, which was around 0 last time. 

EUR/USD Technical Analysis

The pair continues its gradual descent accompanied by downside momentum and the Relative Strength Index (RSI) hovering above 30, the level that separates further falls from oversold territory.

The pair saw daily lows of 1.1530-1.1540 in recent days, and this area serves as the first level of support. The 2018 trough of 1.1510 is already a robust support line. Below, we are already looking at levels last seen in 2017: 1.1480 and 1.1420. 

On the topside,1.1610 is the initial level to watch after providing support earlier this month. A more robust resistance line is 1.1650 which held the pair down earlier this week. 1.1730 was the bottom of the range before the collapse on June 14th.

More: EUR/USD path of least resistance is down after the consolidation – Confluence Detector