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EUR/USD: Risk-off tones emulating from sounds of trade wars

  • EUR/USD struggles in a risk-off environment, despite US stocks turning positive. 
  • Trade wars, COVID-19 contagion risks and prolonged despite fiscal and monetary support measures weigh.

EUR/USD is trading at 1.0908 having travelled between a low of 1.0895 and 1.0974, -.64% at the time of writing as the US dollar surges across the board for the start of this month, extending gains on Monday. 

Risk-off tones are emulating from the sounds of trade wars once again. The US administration has turned up the heat with unsubstantiated accusations and speculation that China withheld information which ultimately led to the global pandemic. 

The WHO has confirmed it has not received evidence from Washington about its speculation about Wuhan laboratory. Mike Pompeo, Secretary of State, spoke out in an interview on ABC News, reported on here: What you need to know as markets open: Pompeo and Trump ratcheted up US and China tensions which led to the Global Times (GT) writing an editorial here: Pompeo’s anti-China bluff strategy reveals all-or-nothing mentality to fool US voters – GT in response. 

European equities were down across the board, US’ picking up, EUR still down

Subsequently, European equities were down across the board by midday and US equity futures pointed to a down market open as well. S&P 500 has since moved from a negative position to trade positive in recent trade, +0.42% at the time of writing, recovering from negative territory. However, the euro remains under pressure and has only managed to inch 20 pips higher towards the close on Wall Street. 

“Over the past couple of weeks, the EUR has found some support in the news that lockdowns in the Eurozone will be gradually lifted and the economies re-started. The relief, however, is likely to be tempered by the realisation that many restrictions will remain in place for some time,” analysts at Rabobank explained, adding:

Higher unemployment and slackened demand can be expected to prevail for a prolonged despite fiscal and monetary support measures. According to ECB Chief Economist Lane, activity in the Eurozone will take three years to return to pre-pandemic levels. In the coming weeks economic data is likely to drive home the scale of the demand side crisis that the world economy faces. On top of this, a re-emergence of US/China tensions threatens to bring additional headwinds to global demand and risk appetite.

The analysts are of the opinion that the USD will remain well supported on the back of cush concerns and that “EUR/USD could edge back to the 1.08 area in the coming weeks.”

EUR/USD levels

 

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