EUR/USD: Focus on USD/CNH and Fed’s Powell

• The EUR/USD and USD/CNH are displaying a high degree of correlation.
• The EUR could take a beating if CNH drops on renewed trade concerns.
• The American dollar may also pick up a bid if Fed’s Powell sounds hawkish.

The EUR/USD is on the defensive, having closed yesterday below 1.1315 (61.8% Fib R of 1.1215/1.1472).

The bearish close happened as hawkish comments from Fed’s Clarida and rising trade tensions put a bid under the US dollar.

Bull breakout in USD/CNH could prove costly for the EUR

Trapped in a narrowing price range, the USD/CNH pair (offshore yuan exchange rate) charted a doji candle yesterday, signaling indecision in the marketplace, even though Trump said on Monday that it was “highly unlikely” he would accept China’s request to hold off on the increase, which is due to take effect on January 1.

The CNH’s resilience in the face of renewed trade concerns puts a question mark on the sustainability of losses seen in the EUR/USD yesterday. This is because, the correlation between the two pairs has risen from 0.45 to 0.77 in the last few days.

The strengthening correlation also means the EUR could take a beating if the USD/CNH sees a symmetrical triangle breakout on rising trade tensions.

Fed’s Powell is scheduled to speak at 17:00 GMT

The bid tone around the US dollar may strengthen if Fed Chair Powell reaffirms gradual path of tightening and says the rates would have to move above the neutral level for some time. The EUR/USD, however, may draw bids if Powell puts more emphasis on the rising risks to the US economy.

The preliminary estimate of the US third-quarter GDP, scheduled for release at 13:30 GMT, and the ECB speak also influence the pair.

EUR/USD Technical Levels