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Jignesh Davda

Trade War Progress to Offer a Catalyst for EUR/USD

There are a lot of things impacting EUR/USD at the moment, but trade talks taking place this week appear to be the most important factor for the exchange rate.

Yesterday, Fed Chair Powell reaffirmed the central bank is willing to do what’s necessary to sustain the expansion. Considering the string of weak US data as of late, investors viewed this as confirmation that another rate cut is coming. The CME’s FedWatch tool shows the market’s pricing in an 85% probability of a rate cut at the Fed meeting later this month.

Investors are looking towards the minutes of the last meeting for further clues as to what it would take for one more cut. The Fed cut rates at the last meeting although the decision was not unanimous. Two members had preferred to keep the interest rate unchanged. Meanwhile one member wanted a more aggressive 50 basis point cut.

The US-China trade war weighs heavily on Fed decisions and might be the largest focal point for EUR/USD traders. High-level talks will take place this week and there will certainly be an increase in headline risk for the pair.


Technical Analysis

Considering that the Fed’s next decision will be largely influenced by how trade talks progress this week, I don’t think there will be a big reaction to the meeting minutes that will be released later today.

EURUSD 4-Hour Chart

EUR/USD trades at an important resistance confluence as the 20-day moving average, which confluences with the psychological 1.1000 level, has been capping recent gains. Further, there is resistance from the upper bound of a declining trend channel. This channel has encompassed price action since late June.

It would not be surprising to see the pair continue to range below this important resistance area. At least until there is some further clarity on how trade talks are progressing.

Bottom Line

  • EUR/USD continues to range below important resistance.
  • Minutes from the last Fed meeting will be released later today. However, they may not have a big impact on the pair.
  • High-level trade talks will take place this week. This could be the biggest driver for the pair in the near-term.
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