- The EUR/USD ended its recovery and began another European morning with a drop.
- Concerns about EM, Italy, and trade dominate.
- The technical picture is bearish with a crucial double-bottom watched.
The EUR/USD is trading in the mid-1.1500s, down on the day but at similar levels to those seen in Tuesday’s European session. The US Dollar pared its gains late on Tuesday and resumed its rally on Wednesday. A mounting number of concerns weighs on the mood and strengthens the greenback against its peers.
South Africa joined the ranks of Emerging Markets that cause concerns. The Rainbow nation reported a contraction in Q2, thus officially putting the country in a state of recession. The Rand lost ground. Argentina is in intense negotiations with the International Monetary Fund to secure funds as the Peso remains on the back foot. Closer to Europe, the Turkish Lira has stabilized, albeit at low ground.
Italy is eyed as well. The euro zone’s third-largest economy is set to unveil its budget and has repeatedly pledged not to breach the area’s budgetary rules. Social programs and tax cuts are on the agenda. The spread between yields of Italian and benchmark German bonds is eyed.
NAFTA talks resume in Washington as Canada toughens its positions in the negotiations. It may have some leverage as the US Congress is keen on including the northern neighbor in the agreement.
More importantly, financial markets await the US decision regarding China. The whopping tariffs on $200 billion of Chinese goods are due as early as Thursday.
See: Trade wars: $200 billion is serious, 3 scenarios and currency reactions for the upcoming escalation
The US ISM Manufacturing PMI came out at 61.3 points on Monday, far better than expected. The forward-looking indicator is at the highest levels since 2004. The number is a positive hint towards Friday’s Non-Farm Payrolls and also emboldens the Fed when it comes to raising rates. The report included some concerns about trade, but these were easily overshadowed by the robust economic activity.
Euro-zone services PMI’s broadly met expectations with the final measure for the component confirmed at 54.4 points in August.
With no significant figures scheduled for today, global themes will likely dominate.
EUR/USD Technical Analysis
The EUR/USD is trading is a narrowing range with higher lows and lower higher. Indicators on the four-hour chart point to the downside. Momentum is negative, the Relative Strength Index is slightly below 50, and the pair is trading below the 50 and 200 Simple Moving Averages.
The double-bottom of 1.1530 is a critical support line to the downside. Further down, 1.1495 was a swing low in late August, and it is followed by 1.1445 that capped the pair when it traded on lower ground. 1.1365 and 1.1300 are next down the line.
Looking up, 1.1585 was a support line late last week and coincides with the 200-SMA. More importantly, 1.1630 capped the pair early in the week. 1.1695 held the EUR/USD down last week.