Search ForexCrunch
  • The escalating trade tensions are likely to keep EUR/JPY under pressure.
  • EUR/JPY selling to keep EUR/USD gains under check.
  • The sell-off in CNH, a global anchor, will likely keep the USD better bid against most majors.

With both EUR/JPY and the Chinese yuan hitting four-month lows, the EUR/USD pair may continue to trade in a sideways manner around 1.12.

“China broke trade deal”, President Trump said while speaking at a rally in Florida and vowed not to back down until China stops cheating US workers. His comments pushed the S&P 500 futures lower in Asia and triggered selling in Asian equities.

As a result, the bid tone around the anti-risk JPY strengthened further, pushing the EUR/JPY pair down to 122.91, the lowest level since Jan. 4.

It is worth noting that China has vowed to retaliate with tit-for-tat measures if the US goes ahead with the planned hike in tariffs on Chinese goods from 10% to 25% on Friday.

With trade tensions escalating, the EUR/JPY pair may continue to trade in the red in Europe and the weak tone will likely spill over to the EUR/USD market, keeping the gains under check.

Further, the offshore yuan (CNH), which hit a four-month low of 6.8334 per US Dollar in the Asian session, may extend the decline further, helping the greenback stay bid against the EUR and other majors.

Even so, caution is warranted on the part of the EUR sellers, as despite Trump’s trade rhetoric, the Chinese are starting two days of negotiations with the US and positive comments by Beijing or Washington, if any, could yield a sudden bullish move in both the EUR/JPY and CNH, leading to a move higher in EUR/USD.

Pivot points