EUR/USD Daily Forecast – Euro Drops Lower as the Dollar Recovers

Trade Talk Developments Trigger Volatility

After a mostly range bound week for several financial instruments, volatility is seen in the markets in the early week. Progression in ongoing trade talks between the US and China provided the catalyst. Over the weekend, Trump agreed to some concessions in hopes of moving along trade talks.

China’s President Xi had wanted Trump to ease restrictions on telecom giant Huawei which the US President obliged to. He also agreed to not impose any further tariffs. In return, China has agreed to purchase an unspecified amount of US farm products. They are also willing to return to the negotiation table.

The news has lifted equity markets across the globe and has underpinned the dollar. I don’t think this optimism will last long. The underlying issues remain. There was a reason that China walked away from negotiations after all. The concessions made my Trump has mostly just allowed trade talks to continue. But will the original issues come to a resolution?

Further weighing on the single currency is a set of weaker than expected data releases. Manufacturing PMI figures out of Spain, France, Italy, and Germany all come in below analyst estimates. This seems to be in line with the global trend as a similar trend is seen from data out of China and Japan and several other Asian countries.

Technical Analysis

EUR/USD has made a fairly important break lower today. The pair was not the only one to do so, and several majors look like they have reversed, at least in the near-term. The US Dollar index (DXY) was last seen testing its 200-day moving average which could cause the EUR/USD decline to subside a bit.

The main level I was watching most of last week falls at 1.1347. Not only does the level mark resistance from early July, but it also carries confluence with the 200-period moving average on a daily and weekly chart.

The support area had held on several attempts until it finally broke down earlier today. I think this level will now be viewed as resistance. While below it, I can see the pair correcting further. It will probably take a move above 1.1385 to lift the spirits of EUR/USD bulls.

For the session ahead, I see some strong support at 1.1305. The level marks a horizontal level and also carries confluence with the 100 moving average on a 4-Hour chart.

Bottom Line

• The near-term trend has shifted to bearish.
• Upside resistance is at the previous support confluence near 1.1347.
• It will take a break above 1.1385 to reaffirm the prior bullish trend.