EUR/USD: Trade tensions could keep gains under check ahead of US NFP release

Drop in Italy-German yield spread likely put a bid under the EUR on Monday. However, escalating trade tensions capped gains 1.1659.
The common currency could revisit the previous day's high if the Italy-German yield spread drops further and EM currencies stabilize.
August highs above 1.17 could be put to test if the US wage growth figure prints well below estimates.

Omkar Godbole FXStreet Contributor

The EUR/USD rose to a high of 1.1659 yesterday, possibly on the back of a drop in the 10-year Italy-German yield differential.

However, the bullish mood turned sour on reports that the Trump administration is now steering towards imposing additional tariffs on $200 billion worth of Chinese imports, having put a 25 percent levy on $50 billion worth of Chinese goods in July. As a result, the currency pair surrendered gains and closed at 1.1622.

The common currency could pick up a bid today if the Italy-German yield spread continues to slide, implying that the market pessimism over the Italian budget is receding.

However, a break above the previous day's high of 1.1659 may remain elusive, courtesy of escalating US-China trade tensions. Moreover, China is likely to retaliate in kind if the US goes ahead with the fresh round of tariffs.

That said, a big rally towards 1.1733 (recent high) could be in the offing if the US average weekly earnings and non-farm payrolls figure for August, scheduled for release at 12:30 GMT, misses estimates by a wide margin, adding credence to the argument put forward by the likes of Fed's Bullard that the central bank should stop raising rates now.

On the other hand, a big beat on the wage growth figure would reinforce hawkish Fed expectations, driving the US dollar higher across the board. The Eurozone second-quarter GDP, due for release at 09:00 GMT, could also move the EUR pairs.

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EUR/USD Technical Levels

Resistance: 1.1659 (previous day's high), 1.17 (psychological hurdle), 1.1733 (Aug. 28 high)

Support: 1.1615 (50-day moving average), 1.1585 (Aug. 31 low), 1.1530 (Sep. 4 low)

	TREND INDEX	OB/OS INDEX	VOLATILY INDEX
15M	Bearish	Neutral	High
1H	Bearish	Neutral	Low
4H	Strongly Bearish	Neutral	Shrinking
1D	Bearish	Neutral	Shrinking
1W	Bearish	Neutral	Low
Updated Sep 7, 04:15 GMT

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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