EUR/USD Forecast: Three reasons why the next move may be down

The common currency finds it harder to gain on intensifying US-Sino tensions.
Markets are pricing successful coalition talks in Italy – that are far from certain.
EUR/USD has been grinding lower and lost the 50-SMA on the four-hour chart.

Yohay Elam FXStreet

Reports suggest that China finds it harder to trust US President Donald Trump – and EUR/USD finds it harder to gain on such news.

1) EUR/USD fails to gain on US-Sino troubles

Bloomberg has reported that Trump's latest claims that "China called" surprised Beijing and deepened mistrust that a deal can be reached with this president. While the world's second-largest economy continues talking with the largest one – China is "preparing for the worst" according to these reports.

Previous setbacks in US-Sino relations pushed investors to the safety of US bonds – implying a higher chance of rate cuts – and pushing the dollar lower. EUR/USD jumped on Friday when both economies announced new tariffs.

However, EUR/USD has failed to reap the benefits from the latest spat. Markets are gradually coming to grips that these trade wars also have a detrimental effect on Germany – which heavily depends on exports to China.

When a currency cannot advance on good news – it may significantly drop when bad news breaks.

2) Italian over-optimism?

Italy's 5-Star Movement and the Democratic Party are trying to hammer out a deal to form a new government – and the clock is ticking. President Sergio Mattarella's time for forming a long-lasting coalition ends today.

The Democratic Party agreed to see current prime minister Giuseppe Conte hold onto his job and according to the latest reports from Rome, the parties are clashing about the role for 5-Star leader Luigi di-Maio.

Such a coalition would be more friendly to the EU than the outgoing one which included the far-right League party. Italy is the euro zone's third-largest economy and has a high debt burden.

However, successful coalition negotiations are already priced in – and there is only downside for the euro in case Italians go to the polls – with Salvini set to win.

3) EUR/USD Technical Analysis – 50 SMA lost

EUR/USD has dropped below the 50 Simple Moving Average on the four-hour chart – after failing to break above the 100 and 200 SMAs earlier this week. Upside momentum is waning. All in all, the tables are turning against the pair.

Immediate support awaits at 1.1084, the daily low. The next cushion is 1.1050, which was the low point last week. It is followed by 1.1027 – the 2019 low. Next, we find 1.1000 and 1.0960.

Resistance awaits at 1.1115, which capped the pair on Tuesday and also last week. It is followed by 1.1130, which was a temporary support line when EUR/SUD traded at higher ground. Friday's high of 1.1165 is next.

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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