EUR/USD rejected one more time from above 1.1250

After the announcement of tariffs from China, the EUR/USD pair jumped and reached at 1.1263, the highest level in ten days but failed again to hold above 1.1250 and pulled back, erasing daily gains. As of writing trades at 1.1230 flat for the day and with the intraday momentum now favoring the downside. 

Up and down 

The main driver in today’s price action has been related to the US-China trade tensions. The retaliation measures announced today by China increased uncertainty and investors concerns. Initially lead to a lower US Dollar across the board but then turned to the upside and erased losses as equity prices in Wall Street extended the decline. US stocks are starting the week on a negative note after having last week the worst of the year. The DOW JONES is down 0.45% and the S&P 500 2.51%. 

“China today retaliated against Trump's tariffs. On the surface it looks like a measured response but China is also likely to stop purchases of US agricultural goods and other products. However, we believe China will retaliate in a moderate way in order not to provoke a further escalation. We do not expect China to sell US treasuries”, said analysts at Danske Bank. Earlier today, US President Trump said “the unexpectedly good first quarter 3.2% GDP was greatly helped by Tariffs from China. Some people just don’t get it!”

The DXY dropped earlier today to 97.03, the lowest since April 18 but over the last three hours recovered and currently trades at 97.30, marginally lower for the day, far from the lows. At the same time the US Dollar Index bounced to the upside, EUR/USD turned lower. 

The 1.1250/60 area continues to be a critical resistance that limited the upside over the last three weeks. A firm break higher could signal more gains ahead. While to the downside, the immediate key short-term support stands around 1.1210. If it declines under 1.1200, the modest bullish bias would be invalidated. 

On a wider perspective, Chris Turner from ING said: “Barring a temporary squeeze of short EUR positions, there seems little reason to change the near term view that EUR/USD stays offered this summer and tests 1.10. As we go to press US-China trade tension is unresolved and there is a still a risk that later this month President Trump opts for tariffs on auto imports. Admittedly there are a few green shoots in terms of European growth, but probably not enough to lift Euro area interest rates off the floor. The TLTRO III to be announced by the ECB in June should also cement the view that EUR rates stay lower for longer”.