EUR/USD: drops to session lows as US yields firm, 100-D SMA to support around 1.1650/60's

EUR/USD has dropped to 1.1654. EUR/USD has traded as high as 1.1724. DXY just popped from 94.49 to 94.51 for a high for the day. EUR/USD keeps falling at the time of writing, giving up its risk-on session gains, (as markets play down latest US tariffs), despite a well-bid S&P/DJIA and a handsome close in European markets. 

US government bond 10 yr yields have risen to as high as 3.039% which usually pulls in a bid for the greenback which is knocking the euro down to size. We have a support are here, where the price is close to the 100-DMA at 1.1662 and 100-HMA 1.1656.

"There were no data reports of any real consequence from Europe this morning and EUR movement has largely tracked the broader trend in the USD. EU Council President Tusk warned the UK that a “no deal” Brexit was still possible but if all players acted “responsibly”, a “catastrophe” could be avoided,"

analysts at Scotiabank explained

Trade wars

On the trade war front, it is hard to see there is a near-term solution to the dispute between the US and China, especially as the president wants to be in a strong position, look strong, act strong and show no signs of weakness, heading into the midterms in November.  Therefore, the what the market probably needs to start taking into account is where the collateral damage will lie, and its not going to be with Chinese consumers - Businesses have already started to complain in the US as higher import prices are not going to be beneficial to them nor the consumer. However,  while the dollar remains the reserve currency, the flight away from EM-FX supports the greenback and higher inflation prospects also underpin the near term case for higher US rates which is also supportive of the greenback - but, again, that is not China's problem. 

• China strikes back

China came back with their retaliation tariffs on US Goods  - These will be effective on 24 September, with rates ranging between 5 and 10% on $60b. The Chinese have also filed a complaint to WTO on the latest US tariff measures on $200Bln worth of Chinese goods – (RTRS). The DXY is slightly firmer at 94.50, recovering from the session lows down at 94.32.

EUR/USD levels

The bullish attempts to 1.1750 resistance have stalled. The ensuing slide sees an inverted hammer form on the daily candle. further out, the longer-term charts are offering a bullish foundation with the H&S negated.  If 1.1630 holds, where a slew of nearly converged daily MAs sit, then bets are back on the table for the 1.17 handle. However, a break lower opens risk back to 1.1515/30 critical support area on a break of 1.1580/50.