- Safe haven assets are in demand although the dollar has slipped and the euro popped with US data missing expectations along with US yields sinking, and still underwater despite a mid-session correction.
- EUR/USD is currently trading at 1.1223 between a range of 1.1173 and 1.1251.
Concerns over an escalating US-China trade war and speculation over a North Korean missile launch have given markets a risk-off tone on Thursday. However, the euro has been on the rise in the North America session, brushing off the risk-off tones in markets and building on the positive German data from earlier in the week.
German IP rose 0.5% m/m in March marking the third increase for IP in the past four months, though it puts 19Q1 IP growth at just 0.5%. In contrast, US IP was a miss today and U.S. Census Bureau also revealed that the U.S. trade deficit in March widened to $50 billion from $49.3 billion in February. However, the key focus stays with China and trade talks with the U.S.
Sino / US trade updates
Investors are buying into bonds which have weighed on 10-year yields today, exposing the downside in the greenback, albeit not likely to keep weighing as demand for US assets will likely remain a theme on expectations of being a safer bet for idle cash all the while trade wars remain a theme and drag on.
The notion that China is fully prepared to defend its interests in its trade war with the United States is concerning to market participants and we have already seen the yen edge to a marginal new low of 109.47 today and a further extension lower looks likely as both the US and China renew negotiations with hardened positions, which should ultimately be felt through currencies such as the euro as treated as funding currency to buy back the yen.
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Trump: It is possible to get a trade deal with China this week, but starting paperwork on tariffs on $325B Chinese imports today
Indeed, hopes for a last-minute trade agreement had been dwindling rapidly and increase of tariffs to 25% from 10% on USD 200bn worth of Chinese goods early Friday (at 12:01am EDT) is likely. China responded on Wednesday that it “will have to take necessary countermeasures” should the US increase tariffs. However, Trump has tried reassuring America that a deal could be done this week and we have seen a slight recovery in risk, although a cautious tone is reverberating around the market and a believe it when we see it attitude is likely to keep markets on red alert and cash idle in safe-havens.
Looking ahead
Eyes will then turn to the US CPI on Friday and the USD is likely to be marginally more sensitive to an unexpectedly weak CPI than a stronger one.
EUR/USD levels
EUR/USD is struggling to overcome resistance and remains capped by 55-day ma above today’s high, 1.1250/65 respectively. Analysts at Commerzbank explained, that, for now, they are unable to rule out a retest of the 1.1110 support, but, if seen, they look for this to hold:
“Be advised that the pattern being traced out is a potential large reversal pattern. We have divergence of the weekly RSI and a 13 count on the weekly chart as well and hence there is a risk of bullish reversal. Initial resistance is the 100 day ma at 1.1322 and the resistance line at 1.1344 ahead of the 200 day ma at 1.1404. Only above the 200 day ma would this imply a bullish reversal.”
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