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EUR/USD: Three Reasons Why Bulls Dominate

EUR/USD: Three Reasons Why Bulls Dominate
  • EUR/USD is trading steadily above 1.1200, defying gravity.
  • Trade headlines remain left, right, and center.
  • The technical outlook is quite bullish for the currency pair.

Fear is growing as the world's largest economies continue tussling. The US slapped China with more tariffs on Friday, and consequent talks in Washington ended without any breakthrough. Over the weekend, US President Donald Trump tweeted angrily about how China is ripping off the US as his administration prepares additional levies. China's Vice Premier Liu He said his country would not compromise on principles. 

US stocks suffered their worst week in 2019, but the safe-haven US Dollar did not gain against the euro. Why?

1) The Fed may cut
National Economic Council Director Larry Kudlow said that the trade wars hurt US consumers. A weaker US economy implies higher chances of the Federal Reserve cutting interest rates later this year, thus weighing on the dollar. 

The expectations for lower rates are reflected in bond markets. The money that flows out from stocks goes into safe-haven US treasuries. In turn, yields are falling, making buying dollars less attractive. 

2) A window of hope
The US has still not revealed its plans for new tariffs, China has not retaliated yet, and even the levies announced on Friday are yet to be felt. They apply only to goods leaving Chinese ports after Friday's announcement. That leaves a window of around two weeks to find some way forward before the new levies begin biting.

3) Europe is next, but not now
The US deals with one trading partner at a time. The longer it deals with China, the farther away it hits the European Union with duties on the automotive industry. The trade truce that Trump and European Commission President Jean-Claude Juncker announced in July 2018 is firmer thanks to the deterioration with China. 

Apart from trade, the economic calendar is light. Fed Vice Chair Richard Clarida will speak later in the day, probably reiterating the central bank's neutral stance on interest rates. Any hint that the trade tensions could raise the chances of a rate cut may weigh on the USD. 

Later this week, German GDP, euro-zone GDP, US retail sales, and other events are set to have their say and move some of the attention away from the trade.

EUR/USD Technical Analysis


With the latest rise, EUR/USD surpassed the 100 Simple Moving Average on the four-hour chart. The break higher join the previous moves above the 50 and 200 SMAs. Moreover, Momentum remains positive, and the Relative Strength Index is on higher ground, but not pointing to overbought conditions. 

Initial resistance awaits around 1.1250 which was the high point on Friday. Next up, 1.1265 is the highest level recorded so far in May, and also a peak in late April. It is followed closely by 1.1280 that provided support in mid-April.

Support awaits at 1.1220 which temporarily capped EUR/USD last week. 1.1176 was the previous low of 2019, and May's low follows it at 1.1135. The current 2019 trough of 1.1110 is the next line to watch.

Image sourced from Pixabay


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Posted-In: EUR/USD European UnionNews Eurozone Forex Global Markets General

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