|

EUR/USD Forecast: Looking vulnerable as rising on trade troubles reaches its limits

  • Calm on the trade front has ended as China rejected Trump's optimism. 
  • Falling US bond yields have failed to boost the euro.
  • Tuesday's technical chart is mixed for EUR/USD.

The euro's ability to enjoy the misery of others may have reached its limits – is it ready for a more significant fall?

On Friday, an escalation in tariff threats has sent the dollar lower alongside falling US bond yields – and EUR/USD shot higher. On Monday, US President Donald Trump and Chinese Vice Premier Liu He called for calm – yields rose and EUR/USD dropped.

But now, the media in the Asian economic giant has expressed doubts about Trump's assertion that China wants a deal. And while bond yields are falling again – EUR/USD remains stuck at 1.1100. 

Are investors getting to grips with the economic pain that Germany and other euro-zone economies suffer as a result fo the US-Sino tussle?

As we have noted several times, the German economy highly depends on Chinese imports of its goods. Final figures confirm that the economy of Europe's "locomotive" contracted in the second quarter by 0.1% and remained stagnant on a yearly basis. More recent data has also shown pessimism. The IFO Business Climate Index has dropped to 94.3 points in August – more than 95.1 expected and well below 95.7 recorded in July. 

More: Euro-zone economy: New German government needed to spend and lift the euro

The common currency also fails to recover despite growing chances that Italy will soon have a new government. The 5-Star Movement and the Democratic Party have significantly advanced in their negotiations. Outgoing prime minister Giuseppe Conte – an independent – may hold onto his job. President Sergio Mattarella has agreed to extend the deadline to form a new government to Wednesday evening amid this progress.

Investors feared that Italy – the euro zone's third-largest economy – would face new elections that could result in Matteo Salvin's League party taking the reins. Salvini has clashed with the EU several times and may have broken Brussels' budgetary rules.

Developments around trade and Italian coalition talks are set to dominate trading today. However, a significant US indicator is due out – the Conference Board's Consumer Confidence Index for August. 

See US Conference Board Consumer Sentiment Preview: Jobs, jobs, jobs

EUR/USD Technical Analysis

EUR USD technical analysis August 27 2019

EUR/USD has dropped back to the downtrend channel after breaking above it on Friday – a bearish sign. Momentum on the four-hour chart is still pointing higher, but it has weakened. The currency pair trades above the 50 Simple Moving Average – ut only just. All in all, the picture is mixed but the pair looks vulnerable.

Support awaits at 1.1095 which is the daily low. The next cushion is at 1.1050, which was the low point on Friday. The 2019 trough of 1.1027 is a critical support line. 1.1000 and 1.0960 are next.

Resistance awaits at 1.1115, which held EUR/USD down early last week. It is followed by 1.1130 that provided temporary support on Monday and by the recent peak of 1.1165. 

Author

Yohay Elam

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.

More from Yohay Elam
Share:

Editor's Picks

AUD/USD rises to 0.6950 as USD slips on Fed's Warsh

AUD/USD regains traction and extends the bounce toward 0.6950 in the Asian session on Friday. Fed Chair Warsh's comments reinforce the selling pressure on the US Dollar, allowing the pair to stretch higher. Warsh said that he remains committed to delivering price stability without giving away anything on future interest rate path.

USD/JPY falls in symc with USD, gives up 158.00 after Warsh's speech

USD/JPY has come under fresh selling pressure and gives up 158.00 in the Asian session on Friday amid the emergence of fresh US Dollar selling. Fed Chair Warsh's non-committal commentary on the future tightening path, weighs on the US Dollar and the pair.

Gold looks vacillating above $4,150

Gold alternates gains with losses below the key $4,200 mark per troy ounce on Friday. The yellow metal’s irresolute price action comes in response to a modest pullback in the US Dollar and a tepid recovery in US Treasury yields across the board.

Bitcoin steadies at $82,000: The five forces crushing the Uptober rally

Crypto markets have remained under pressure so far in October, with Bitcoin (BTC) sliding below $80,000 earlier this week before recovering to around $82,000 on Friday, as macroeconomic headwinds and cooling demand weigh on the market.

The Fed just got a second hot inflation number. Here's what the diesel signal is really saying
The Federal Reserve (Fed) faces a renewed inflation challenge after two consecutive reports showed price pressure intensifying across the US economy. September's Consumer Price Index (CPI) confirmed accelerating consumer inflation, while the Producer Price Index (PPI) revealed an even sharper rise in business costs. Behind both reports lies a common factor: energy prices.
Everyone's dumping Gold after hot US inflation. Here's why $4,100 could be a floor, not a cliff
Gold (XAU/USD) is recovering from a sharp sell-off triggered by hotter-than-expected United States (US) inflation data released on Wednesday. The precious metal briefly plunged toward $4,073 as investors increased their bets on further Federal Reserve (Fed) interest rate hikes before recovering as US Treasury yields and the US Dollar (USD) reversed their initial gains.