- EUR/USD is trading on higher ground after the trade truce.
- Progress on Italy also helps ahead of significant US events.
- The technical picture is improving for the pair.
EUR/USD is back to the upper end of the range, above 1.1350. The pair opened the week with a Sunday gap after US President Donald Trump and his Chinese counterpart Xi Jinping agreed on a 90-day truce in the trade wars. The leaders of the world’s largest economies decided not to impose new tariffs and intensify talks on a long list of issues from trade practices, through the forced appropriation of technologies, Intellectual Property, fentanyl (a deadly opioid) flowing from China to the US, and more. China also agreed to buy “substantial” amounts of US agricultural goods.
Markets are rallying on the news, and the risk-on atmosphere triggered a sell-off of the safe-haven US Dollar. However, it is important to note that there are discrepancies between the statement that came out of the White House and that coming out of Beijing. Also, the long list of US grievances will be hard to resolve in 90 days. Trade accords usually take a long time to negotiate. Nevertheless, markets remain happy at the moment.
Another positive development comes from Italy. The euro zone’s third-largest economy continues its climbdown from the planned budget deficit of 2.4%. After the coalition leaders signaled that the deficit of 2.4% is “not set in stone,” talks continue with Brussels. Commissioner Vladis Dombrovskis said there is a different tone from Rome. The spread between Italian and the benchmark German bonds remains below 300 basis points.
Brexit is a bit more complicated, but luckily for the Euro, the effect is minimal. The British press reported that the legal advice on the Irish backstop describes Britain being “indefinitely trapped” in the customs union according to the Irish backstop. The publication hinders the chances of UK PM Theresa May to pass the Brexit deal in Parliament on December 11th.
Euro-zone Purchasing Managers’ Indices came out slightly above expectations with the final manufacturing PMI for the euro-zone enjoying an upgrade from 51.5 to 51.8 points. Later in the day, the US ISM Manufacturing PMI is set to move markets. The forward-looking indicator serves as a hint towards Friday’s all-important Non-Farm Payrolls.
Last week, Fed Chair Jerome Powell said that interest rates are “just below” the range of neutral rates. His words triggered an initial risk rally that faded later on as markets got to grips with the full meaning of his speech. No fewer than four Fed officials: Clarida, Quarles, Williams, and Brainard will have a chance to clarify the Fed’s intentions in speeches later today.
All in all, the mood remains positive, supporting EUR/USD. However, any cooling down from Trump, or other US officials, could curb markets’ enthusiasm and send the pair back down.
EUR/USD Technical Analysis
EUR/USD gapped higher and has not closed the gap quickly, a bullish sign. Also, the pair broke above the 50 Simple Moving Average and enjoyed accelerating Momentum. It is currently capped by the 200 SMA which meets resistance at 1.1380 at the time of writing.
Further up, 1.1405 held EUR/USD down last week and maintained its role. 1.1435 is the next level to watch after the pair met resistance at this area in mid-November. 1.1475 and 1.1500 are next.
Some support awaits at 1.1350 that was a swing low late last week. 1.1325 is of higher importance as this is the gap line. The former double-bottom of 1.1300 is next and followed by 1.1270 which was the low point last week.