EUR/USD getting a bit of altitude sickness

  • The EUR/USD is trading near 1.1800, holding onto high ground.
  • Markets are calm about trade and ignoring other concerns. 
  • The technical charts show the pair is flirting with overbought conditions.

The EUR/USD is trading just below 1.1800, holding onto the gains it enjoyed on Thursday. A risk-on atmosphere dominates financial markets. The US announced a 10% tariff on $200 billion of Chinese goods early in the week. The relatively low tariffs, a moderate Chinese response, and the pre-announcement well in advance are part fo the five reasons for the calm.

As stock markets advanced, the safe-haven US Dollar and Japanese Yen dropped against all the rest. The move intensified on Thursday with the pair reaching the highest levels since mid-July.

Euro-zone Purchasing Managers’ Indices mostly missed expectations with a significant drop in the all-important German Manufacturing PMI, to 53.7 points. The forward-looking gauges indicate slower growth. The common currency ignores the news.

The unofficial EU Summit in Salzburg, Austria, ended in an acrimonious tone. The EU rejected outright the British Chequers proposal, complicating not only the Brexit negotiations but also UK PM Theresa May’s position ahead of the Conservative Party Conference that begins on September 30th. The Pound is slightly lower and the news is marginally hurting the Euro.

Later today, Markit releases its Flash PMI for the US, but it is unlikely to have a substantial impact.

All in all, a lot depends on the market mood with trade and Brexit standing out. Last Friday, the US Dollar corrected its losses late on Friday. Will it happen again?

EUR/USD Technical Analysis

The EUR/USD is trading above the 50 and 200 Simple Moving Averages on the four-hour chart. However, the Relative Strength Index (RSI) is flirting with the 70 line which indicates overbought conditions. This may limit the pair’s advance.

The round number of 1.1800 is psychologically important but bears not technical importance. 1.1795 capped the pair in early July and is more meaningful. Further up, 1.1825 has been identified by the Confluence Detector and 1.1850 was the high point in June. Even higher, 1.1915 was a low point in January and remains relevant.

1.1750 was a quadruple top back in July and switches to support. 1.1725 held the pair down before the recent ascent. Lower, 1.1690 was a temporary top in August and 1.1650 is a strong support line after cushioning the pair’s fall earlier this week.


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