Jignesh Davda
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Risk Appetite Falters on Lack of Trade Update from Trump

The markets waited in anticipation of further insights on when phase one of the trade deal between the US and China will be signed, but were disappointed as Trump failed to deliver in his speech on Tuesday.

Trump’s rhetoric was mostly unchanged from what he said over the weekend as he repeated that the US is close to reaching a deal. Nevertheless, the equity markets in North America posted small gains yesterday. However, most Asian and European markets are under pressure in early day trading today.

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The euro stands to recover if the risk rally loses momentum and how US equities react after the opening bell will be important.

The recent renewal of risk appetite has benefited the dollar which is the strongest among the major currencies for the month thus far. The euro, on the other hand, is the weakest on the same list.

The New Zealand dollar jumped higher today after the Reserve Bank of New Zealand surprised markets by not further cutting rates. The euro declined to a fresh two-month low against the Kiwi dollar after breaking a support level that held it higher since late September.


Technical Analysis

EUR/USD is showing strong downward momentum and recovery rallies have been shallow and brief. On a 4-hour chart, the 20-day moving average has attracted sellers on each bounce since the turn early in the month.

This indicator offers resistance for the session ahead in around 1.1025. Just above it, the 50-day moving average comes into play at 1.1040.

EURUSD 4-Hour Chart

While EUR/USD has been steadily moving lower, the pair has lost some momentum in the past few sessions. At the same time, there is not enough evidence to signal that the pair will recover from here.

I think EUR/USD sellers will opt to sell on rallies rather than at current levels considering that there are several layers of support nearby. The psychological 1.1000 level is one, and is being respected thus far.

Just below it is the 61.8% Fibonacci retracement as measured from the October low to high. Lastly, 1.0970 marks the measured move target for a double top pattern. This pattern has been in play since late last week and the target is a likely area for profit taking.

Bottom Line

  • EUR/USD is catching a bid from the 1.1000 price point. The pair faces hurdles at 1.1025 and 1.1040.
  • A shift in risk sentiment stands to underpin the exchange rate. Most equity indices overseas are under pressure today. How the US markets trade later in the day will be important.
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