EUR/USD: Further sliding on downtrend support? EU can kicking and US coronavirus eyed
Kicking the can down the road – the familiar phrase associated with the eurozone debt crisis – can describe upcoming talks on the EU recovery fund. Leaders hold a summit to discuss the European Commission’s ambitious plan which including €500 billion in grants mutually funded.
The “Frugal Four” – Austria, the Netherlands, Sweden, and Denmark – prefer settling only for loans and are unhappy with sharing guarantees. Investors expect the proposal, perhaps with some modifications as gestures to these countries, to go through. However, that may have to until July, at least according to German Chancellor Angela Merkel, who lowered expectations.
Reports about progress toward a deal may boost while headlines talking about frictions risking it could weigh on the common currency. Markets expect the proposal, backed by Germany and France, to eventually go through.
The US dollar has been gaining ground amid a mix of concerns. US initial jobless claims remained stubbornly high at around 1.5 million in the week ending on June 12, while continuing claims for the previous week held above 20 million. It seems that the rebound in the labor market may have reached its limits, but more data is needed.
On the other hand, coronavirus concerns have somewhat waned. While Texas and Florida continue suffering from an increase in hospitalizations and cases, the pace has not materially accelerated. The US Sun Belt remains the epicenter while the greater New York area is returning to normal.
President Donald Trump is holding a rally in Oklahoma on Saturday – in what may turn into a “super-spreader” event. The Tulsa gathering is also seen as a firing shot to the electoral campaign. According to a poll published by Fox News, rival Joe Biden is leading Trump by 12 points – 50% to 38%. Market attention is currently on the economic recovery and the virus rather than on politics.
Washington is sending mixed messages on relations with China. While Trump touted the world’s largest economies could decouple, other officials are satisfied with Beijing’s fulfillment of Phase One of the trade deal.
China somewhat soothed markets by announcing that it has the outbreak in its capital under control – but maintains several restrictions in check. Hopes for a vaccine and a study showing that a cheap steroid reduces mortality boosted the mood, yet doubts about the potential of herd immunity are a cause for concern.
To add another complication, Friday marks the “quadruple witching” of futures and options on Wall Street – usually resulting in higher .
All in all, the current calm will likely make way for more action.
EUR/USD Technical Analysis
Euro/dollar is trading alongside a downtrend support line that has been accompanying it since mid-June and has become stronger. It currently hits the price around 1.1175 and should provide support. On the other hand, momentum has turned down and EUR/USD has dropped below the 100 Simple Moving Average.
The initial cushion is around 1.12, a round level, and is followed by 1.1175, mentioned earlier. 1.1150 temporarily capped euro/dollar on the way up, and 1.1075 was a support line around late May.
Resistance is at around 1.1265, a line from Thursday, followed by 1.1290, a swing high from earlier in the week and where the 50 SMA hits the price. 1.1350 is the next level to watch.