Merkel moves the euro up, Trump can turn it down

  • The EUR/USD is extending its recovery following the resolution of the political crisis in Germany.
  • A light calendar leaves the scene for trade headlines.
  • The technical picture is improving for the pair.

The EUR/USD is extending its gains in the European morning, moving cautiously to the upside. The primary driver is the late night compromise reached between Chancellor Angela Merkel and Interior Minister Horst Seehofer, the leader of her Bavarian sister party, the CSU. The agreement prevents an early fall of the government in the eurozone’s largest country.

The deal includes opening processing camps close to Germany’s borders for specific types of migrants. The CSU is pressured by the extreme-right AfD ahead of regional elections in Bavaria due in October.

In broader markets, concerns about trade remain in the forefront. Asian stocks wobbled overnight on fears of global trade and the ongoing devaluation of the Chinese Yuan. Nevertheless, there is no panic in the markets. US President Donald Trump criticized the World Trade Organization (WTO) and said that if it does not treat the US fairly, “we will have to do something.”

More: Trade War from the Trenches: everything you need to know about the three big battles ahead

Spain reported a drop of 90,000 in the ranks of the unemployed, slightly worse than forecast. Euro-zone Producer Prices and Retail Sales are next but are unlikely to rock the boat. In the US, Factory Orders are expected to advance after falling by 0.8% last month. Also here, the data is not critical to markets.

Any trade-related headlines or changes in the mood will likely have a more significant effect.

EUR/USD Technical Analysis

The 4-hour chart paints a bullish bias. The Relative Strength Index (RSI) is above 50 and Momentum is positive. The pair is supported by the 50 Simple Moving Average.

The first notable resistance is at 1.1680 which is the 200 Simple Moving Average. It is closely followed by 1.1695 which capped the pair on July 2nd. Further up, 1.1720 is already a stronger level of resistance after holding down the pair on June 26th. The next cap of importance is 1.1850 which was the swing high on June 14th.

Looking down, 1.1650 remains a battleground after serving as both support and resistance. 1.1615 was a temporary trough on June 29th, and 1.1590 was the low point on July 2nd. Lower, 1.1540 serves as the last defense before the 2018 low of 1.1508.

More: EUR/USD may find it easier to rise than fall – Confluence Detector


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