- EUR/USD is holding onto gains above 1.1200 as the market mood improves.
- US-Sino trade remains in the spotlight, but German data and other events may impact the pair.
- The technical outlook is decidedly bullish for the currency pair.
US President Donald Trump proved his sensitivity to stock markets once again. After the escalation in the trade war brought US share indices down by more than 2%, Trump said he has a “good feeling” about US-Chinese trade talks. His words helped stabilize Asian and European stocks and paint a rosier outlook for the US open.
But for EUR/USD, nothing seems to matter. The world’s most-popular currency pair advanced after China announced it would retaliate with tariffs and has held its high ground after the mood changed.
Will the currency pair rise or fall with the next escalation? Here are two opposing views on the USD:
- Three reasons why the dollar is waving the white flag as China strikes back
- When the going gets tough the dollar will get going
A lot depends on the reaction from the Federal Reserve. Several officials said on Monday that it is too early to assess the economic impact of the trade wars. Nevertheless, bond markets now reflect a higher chance of a rate cut this year, and three slashes are also possible according to current prices.
What seems a bit more certain is that there will be another escalation. While Trump was speaking, his administration released a detailed list of additional projected that would suffer new duties on the remainder of Chinese imports.
Europe may not be spared from Trump’s tariffs. US Commerce Secretary Wilbur Ross said that a decision on whether to slap levies on cars and car parts coming out of the old continent will be taken by May 18th. The EU has already prepared its potential retaliatory tariffs. In case the president directs his ire also to Europe, the common currency may have more room to fall.
Trade remains left, right, and center, but an update on the mood in Germany may have its say. The German ZEW Economic Sentiment is set to show another recovery, reflecting another month of optimism.
EUR/USD Technical Analysis – Bullish
EUR/USD is trading above the 50, 100, and 200 Simple Moving Averages on the four-hour chart, Momentum remains positive, and the Relative Strength Index is shy of the 70 threshold, thus not indicating overbought conditions.
Initial resistance is at 1.1250 that held EUR/USD down late last week. Monday’s high at 1.1265 is also a double-top after capping a rise in early May. The next levels to watch are 1.1280 and 1.1325 that defined the limits of a high range that was seen in mid-April.
Support awaits at 1.1220 that was a swing low earlier today and also held the currency pair down last week. 1.1175 was a swing low last week and so was 1.1135. The 2019 trough of 1.1110 is next.