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  • EUR/USD created a bullish engulfing candle Friday, aborting the short-term bearish view.
  • A break above Friday’s high of 1.1205 would strengthen the case for a rally to 50-day MA.
  • The renewed US-China trade tensions and the resulting risk-off could cap upside in the EUR.

With markets witnessing risk aversion, EUR/USD may a tough time validating Friday’s bullish engulfing candle with a move above 1.1205.

The currency pair turned higher from lows below 1.1140 and closed with a 0.27 % gain at 1.1200 on Friday, engulfing the previous day’s high and low. The shared currency eked out gains despite the big beat on the US April Nonfarm Payrolls and a slide in the jobless rate to the lowest since 1969.

The dollar was likely offered due to anemic wage growth, which validated the Fed’s decision to pause rate hikes. Further, the dollar was likely pressured by US Vice President Mike Pence joining the chorus of Trump administration officials calling for a rate cut.

With the Friday’s bullish candle, the bearish view put forward by the rejection at the key descending trendline on May 1 stands neutralized. The case for a rally to the 50-day moving average (MA), currently at 1.264, however, would strengthen once the spot finds acceptance above Friday’s high of 1.1205.

That, however, may not happen today as Trump’s renewed China trade threat has triggered a flight to safety.

Early Sunday, Trump tweeted that he would raise tariffs on $200 billion worth of Chinese goods to 25% from the current 10%, catching both Chinese officials and markets off guard. The trump’s move has poured cold water over the optimism generated by both Washington and Beijing’s repeated assurances over the recent weeks that negotiations are going well.

More importantly, China is reportedly considering canceling the next round of trade talks set to begin in Washington on Wednesday.

The re-escalation of trade tensions and the risk-off, as represented by the slide in Asian stocks, will likely boost haven demand for Treasuries (and USD) and cap gains in EUR/USD. Apart from trade tensions, the pair may take cues from the final German and Eurozone PMI (Apr) readings scheduled for release later today.

Technical Levels