- EUR/USD holds its high ground despite new US tariffs on China.
- Euro-zone data and US inflation may have an impact apart from trade.
- The technical outlook is improving for the currency pair.
EUR/USD is trading closer to 1.1250 than to 1.1200, holding the gains it made on Thursday. The common currency is bid despite an escalation in the trade war between the world’s largest economies.
The US has just imposed new tariffs on China. The duties on $200 billion worth of annual imported Chinese goods jumped from 10% to 25% today at 4:01 GMT, serving as a significant escalation in the commerce conflict. China has responded said it would retaliate against these new levies.
However, S&P futures are balanced, the safe-haven yen is only marginally bid, and EUR/USD is looking good.
Why? Here are three reasons:
1) Tariffs are only on new shipments
The devil is often in the details. The new measure only applies to goods coming out of Chinese ports as of today, but not to those that have already been sent out of China before the new tariffs came into effect.
This distinction provides around two weeks of grace before the duties have a direct detrimental effect on both Chinese exports and US importers.
2) Negotiations are going on
The Chinese delegation led by Vice Premier Liu He is still in Washington at the time of writing. Moreover, presidents Donald Trump and Xi Jinping reportedly had a phone call and may continue speaking.
A breakdown of negotiations could sour the mood, but that has not happened yet.
3) Europe is next
The White House has its eyes on trade issues with the European Union, especially around the automotive industry. However, officials in the American capital tackle one trade dispute at a time.
As long as China tops the agenda, the German car industry remains safe from new tariffs by Trump. So while Europe may indirectly suffer from weaker Chinese demand and a worsening outlook for the global economy, the focus on China postpones the day of reckoning for the old continent.
Moving to the charts, things are improving there as well.
EUR/USD Technical Analysis
EUR/USD is enjoying upside Momentum on the four-hour chart, and the Relative Strength Index is rising. Moreover, it has surpassed the 100 Simple Moving Average after having crossed the 50 and 200 ones. All in all, the bulls are better-positioned.
Initial resistance awaits at 1.1250 which was the high point on Thursday. It is closely followed by 1.1265 that was a high point in early May and had also served as resistance in April. Another cap is 1.1280 which was a support line in April. 1.1330 is next.
Initial support awaits at 1.1210 that was a temporary cap last week. It is followed by 1.1165 that held the currency pair up last week. 1.1135 was a swing low last week, and 1.1110 is the current 2019 trough.