Markets' lean season has lasted two full years and while those are not yet over, flush times are looking more and more likely for this 2020. EUR/USD news: The beginning of the end of the trade war? Ever since hitting 1.2537 in January 2018, the EUR/USD pair has been on a selling spiral that set a multi-year low of 1.0878 just two months ago. The level can hardly be considered an interim bottom when just considering the following price’s recovery, but the focus this time shouldn’t be put on technical readings, but in politics.
EUR/USD slips back to low ground amid coronavirus concerns
EUR/USD is trading closer to 1.08 coronavirus headlines are weighing heavily on the market. The US dollar remains bid despite falling US yields. Earlier, the German IFO Business Climate beat with 96.1.
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While momentum on the four-hour chart turned positive, euro/dollar has failed to recapture the 50 Simple Moving Average. It trades below the 100 and 200 ones. More importantly, the Relative Strength Index is back above 50 – outside oversold conditions and allowing for more falls.
Support awaits at 1.0820, which has been separating ranges in recent weeks, and the upper bound of the "Macron Gap" from 2017. The 2020 low of 1.0777 – also the lower bound of that 34-month old gap – is the next level to watch. 1.0720 and 1.0655 are next.
Resistance awaits at 1.0860, which was the high point on Friday, followed by 1.0885, which was both a swing high and a swing low in mid-February. 1.0925 and 1.0940 are next.
"The German economy is not affected by coronavirus" – says the IFO, Germany's leading thinktank. His words – accompanied by a minor beat in the institution's Business Climate figure for February – are helping EUR/USD recovery.
Yet this upward move may prove a selling opportunity.
Why? Starting from IFO, their optimism may be unwarranted – or perhaps already outdated. Since the survey was taken, the virus has already taken the lives of four people in northern Italy where authorities have put several towns under lockdown. The disease is taking an economic toll on Europe and Germany is unlikely to be immune.
Moreover, Chinese President Xi Jinping has expressed concern about the outbreak – a change from Beijing's more defiant tone last week. The Communist Party canceled its annual parliament gathering. Worse off, hopes that Wuhan – the epicenter of the coronavirus – would lift some travel restrictions were quickly abandoned.
German growth has been fueled by Chinese demand in recent years and if the world's second-largest economy grinds to a halt – Europe's biggest one would feel the pain.
For the dollar, coronavirus has been most beneficial. The greenback benefits from safe-haven flow into US bonds. On the other hand, lower bond yields make the world's reserve currency less attractive.
Purchasing Managers' Indexes on Friday provided an opportunity to cover shorts on EUR/USD after it reached a new 34-month low at 1.0777. The all-important German Manufacturing PMI beat expectations with 47.8 – albeit on top of a rise in delivery time.
In the US, Markit's PMIs – which are usually outweighed by ISM's figures – sent the dollar lower. The forward-looking gauge for the services sector dropped below 50 – the lowest since 2013 – indicating contraction in America's driving force.
While not all factors are EUR/USD bearish, the old continent is likely to struggle with the virus more than America.