EUR/USD: bulls might go hungry if they plan on a 1.18 handle feast

• EUR/USD bulls are determined on a break through the 1.1725 target.
• Dollar could rebound on Central Bank divergence - The US economy is currently running at full speed.
• New round of US tariffs raises the pressure on China - watch EM-FX turn over.

EUR/USD has been supported by the bulls guarding the 38.2% fib of the 1.1718-1.1525 drop while the DXY struggles to hold form in the upper third of the 94 handle, rejected twice at the 94.70 highs in the last two days of trade. EUR/USD is currently trading at 1.1682, up from the session low of 1.1650 (fibo) and down from the 1.1715 highs. 

EUR/USD bulls are determined on a break through the 1.1725 target that will open up space to the 1.1750 daily high of July 23rd as the first stop en-route for higher levels so long as the current shift in sentiment for the dollar remains in place. However, from a central bank and fundamental standpoint, that may not play out in the hands of the bulls and it is unlikely that any further ground will come on a silver platter considering the matter of fact which is the US economy continues to outperform. 

At times of risk-on, the euro performs on the bid and in the current environment, the bulls have been riding the waves in a rebound in EM-FX and high beta plays such as the Aussie, (a proxy to China) and the CAD, (supported by WTI's spike, rising dollar weakness and bulls clinging to unfounded NAFTA hopes - so far). 

However, that could all turn on its head and if you blink, you will miss it - (as seen today in USD/CAD spiking on the slightest whisper of negative NAFTA sentiment). Not much is needed for the tables to turn - Headlines such as EU’s Juncker: EU-UK `far away' from Brexit deal certainly help the dollar bull's case, and once the ramifications for a prolonged trade war between China and the US are unveiled as being less favourable for the Chinese economy, that should be enough to stem the argument for reversals in the EM's and high betas such as the Aussie - supporting the case for a flight back to the greenback. 

We also have the FOMC around the corner and we have had an absence of key US data this week and nothing to note until after the Fed - US GDP next Thursday - ( Analysts at Standard Chartered Global Research upgraded their GDP growth forecast for 2018 to 2.9% (2.7% prior), 2019 to 2.6% (2.3%)). 

New round of US tariffs raises the pressure on China

Another factor that the market has not seemed to have priced in, yet, but rather prefer to run with the encouraging headlines out of China of late, is that a prolonged trade war with the US is likely to hurt an already struggling Chinese economy. Whether the Chinese try to prevent a devaluation of their currency or not, it may be inevitable if they receive fewer dollar earnings due to the tariff wars - especially if US businesses decide to up-sticks and move their operations away from China and into to other low-wage countries, such as the Philippines, India and Vietnam. This would indirectly impact the euro considering the likely outflows from EM-FX into the greenback so long as the US economy continues to recover at full steam. 

The US economy is currently running at full speed

"Unemployment is currently 3.9%, the annualized GDP figure for the second quarter was 4.2% and consumer and producer confidence is very high," analysts at Rabobank explained -  "We therefore expect that the US economy can tolerate some damage."

With the FOCM around the corner, focus may well shift back to fundamentals, just long enough, perhaps, for the dollar to enjoy a well-deserved relief rally - depending on what meat there is on the bone for markets to chew on subsequent of the FOMC's median real growth projections and the median dot plot for 2019. 

• Strong data may compel the FOMC to keep raising rates - Standard Chartered

EUR/USD levels

Analysts at Commerzbank explained that the EUR/USD is poised to encounter resistance offered by the 1.1745/50 area and the 1.1790 recent high:

"This has rejected the market many times and remains formidable resistance. A close above here is needed to trigger a move to the 1.1853 mid-June high and the 1.1907 55 week ma. We continue to view the recent low at 1.1301 as a significant turn for the market. The cross will need to drop sub 1.1508 to alleviate immediate upside pressure."