Will EUR/USD cheer risk aversion?

Omkar Godbole FXStreet Contributor

The latest round of Korean tensions spooked markets in Asia. The Japanese Yen is well bid, along with the traditional safe haven assets like gold and the Treasuries. AUD/JPY, the global risk barometer, dropped close to 1% in Asia to a low of 86.30. EUR/JPY dropped more than 0.6% to 128.71 levels.

The losses in the AUD/JPY and other Yen crosses in Asia are usually an advance indicator of risk aversion in the European and American markets. No wonder, the SP 500 futures are currently down 0.30%. The European indices are likely to follow suit.

The question now is - whether the EUR would cheer risk aversion as seen in August 2015 and January 2016 or will it take hit against the Federal Reserve note?

The answer lies in the chart below, which shows the rally in the EUR/USD pair [yellow line] has been accompanied by uptick in the Dow index.

EUR/USD and Dow Index comparison chart

The common currency has been treated as risk/growth currency this year, given the positive correlation with the Dow index, while the US dollar has been sold across the board.
Dow has rallied from 18K to 22K so far this year, while EUR/USD has gone from 1.03 to 1.19.
So the odds are high that the EUR would feel the heat of a potential risk aversion in the markets.

The data docket is thinner today; hence the focus remains on the broader market sentiment.

EUR/USD Technical Levels

The pair revisited the previous day’s low of 1.1715 in Asia and was last seen trading around 1.1730. A break below 1.1683 [support offered by the trend line sloping upwards from the June 23 low and the Aug 13 low] would open doors for 1.1613 [July 26 low] and 1.16 [zero figure].

On the higher side, breach of hurdle at 1.1770 [resistance on 1-hour chart] could yield a re-test of 1.1785 [1-hour 50-MA] and 1.1798 [1-hour 200-MA].

Read: Is EUR a 'growth currency' vulnerable to risk aversion?

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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