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  • EUR/USD drops as the US dollar finds haven demand on escalating US-China tensions. 
  • China’s plan to impose a controversial security law on Hong Kong draws Washington’s ire.
  • The US proposal to sell arms to Taiwan irks China. 

EUR/USD is feeling the pull of gravity on Friday with the American dollar drawing haven bids amid fears that China’s decision to impose new Hong Kong security law would lead to major US-China tussle. 

The currency pair is trading near 1.0935 at press time, representing a 0.13% drop on the day, having faced rejection at 1.10 on Thursday. That was the pair’s second failure to topple the 1.10 resistance of the ongoing month. 

Risk-off

Major Asian equity market indices are flashing red with Hong Kong’s Hang Seng index reporting a 4% decline. Meanwhile, oil prices are down by over 6%. 

Investors are shunning risk seemingly due to China’s proposal to rein in dissent by writing a new law into Hong Kong’s charter. The new law would ban secession, foreign interference, terrorism, and external interference aimed at toppling the central government. 

Washington has already issued a stern warning that it would react very strongly if Beijing attempts to gain more control over the former British colony.

As a result, investors are worried about the prospects of a full-blown cold war between the US and China. The two nations are already at loggerheads over the origin of the coronavirus and China’s handling of the virus outbreak. Also, the US proposal to sell arms to Taiwan has irked China. This is because Beijing does not recognize China as an independent nation. 

With geopolitical tensions escalating, the US dollar, a global reserve, is likely to remain better bid while heading into the weekend. 

On the data front,  the minutes of the European Central Bank’s (ECB) monetary policy meeting is scheduled for release at 11:30 GMT. The pair may also take cues from the ECB policymaker Lane’s speech at 14:30 GMT. 

Technical levels