EUR/USD bides time ahead of US-China trade talks
Fawad Razaqzada May 9, 2019 12:47 PM
The EUR/USD has been consolidating in a tight range so far this week, despite sharper moves in other FX markets. At the time of writing, the world’s most heavily traded pair was clinging onto the positive territory this week after finishing higher the week before. The single currency has found some mild support from this week’s mostly stronger-than-expected Eurozone data (for a change), while the US dollar has traded mixed ahead of the much-anticipated trade talks in Washington later between US and Chinese officials.
The US dollar has fallen against haven currencies, most notably the Japanese yen, while it has risen against China-sensitive commodity dollars. If the US were to impose additional tariffs on Chinese exports, this would push up import costs and ultimately lead to higher inflation in the US. As a result, the greenback may rise further, especially against commodity dollars. Meanwhile concerns over China as a result of raised tariffs in the US could weigh on Eurozone exports and in turn on demand for the euro from China (and other emerging markets). So, the EUR/USD could break further lower in the event the US and China fail to agree on a trade deal. However, if there is a deal, potentially by the end of this week, then this could help support the euro (and commodity dollars) and underpin the EUR/USD exchange rate.
Meanwhile, from the Eurozone, recent macro pointers here have not been too bad. This week alone, we have seen:
- An upward revision to Eurozone final PMIs (52.8 from 52.5)
- The drop in Spanish unemployment was bigger than expected (91.5K vs. 85.0K)
- Eurozone retail sales remained flat month-over-month, but this was still better than anticipated (-0.1% m/m)
- Sentix Investor Confidence improved more sharply than anticipated (to +5.3 from -0.3)
- German industrial production unexpectedly rose in March (+0.5% m/m vs. -0.5% expected)
So, the EUR/USD’s resilience makes some sense, but ultimately the near-term direction of the exchange rate will depend on the outcome of the US-China trade talks this week. As far as the longer-term outlook is concerned, it will take more than a few positive Eurozone numbers to change the current bearish trend.
Source: TradingView and FOREX.com
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