- Global trade tensions ease, bringing back US Dollar demand.
- Business-related data and central bank speakers taking centre stage.
- EUR/USD near-term support at 1.1160, sellers to take over once below it.
The EUR/USD pair gapped lower at the weekly opening and fell towards 1.1064 on Monday, as the US Dollar (USD) surged on the back of headlines indicating a de-escalation of trade tensions between the United States (US) and China.
Optimism around the global trade war
In a joint statement, representatives of both economies agreed to roll back retaliatory tariffs for 90 days, following weekend negotiations. They also agreed they had made “substantial progress” towards a trade deal. As a result, Washington will cut extra levies on Beijing from the current 145% to 30%. Reciprocally, China will charge 10% on US imports, down from the previously announced 125%.
There were no further reports on negotiation progress throughout the week, with optimism fading and USD demand alongside. The EUR/USD pair is ending the week pretty much as it started at around 1.1200. On the other hand, Wall Street posted a nice comeback, retaining its positive momentum ahead of the close, adding to limited USD strength.
The positive mood also faded on market talks, suggesting trade negotiations between the US and Japan may come to a deadlock.
Still, financial markets are relieved on levies roll-back and hope negotiations will continue. US representatives will meet with different trading counterparts in the upcoming days to continue technical discussions on trade. No news on that front is good news for markets.
Unimpressive data
Other headlines failed to have a relevant impact on EUR/USD, despite the release of some first-tier data figures.
The US published an update of the Consumer Price Index (CPI), which rose by 2.3% in the twelve months to April, slightly below the expected and the previous 2.4%. The core annual reading, however, remained steady at 2.8%. On a monthly basis, the CPI was up 0.2%, higher than the -0.1% previous yet below the 0.3% expected.
Softer-than-anticipated inflationary pressures were not enough to change the market’s view on how the Federal Reserve (Fed) will conduct its monetary policy.
The country also released April Retail Sales, up a modest 0.1% in the month. Finally, on Friday, the preliminary estimate of the Michigan Consumer Sentiment Index for May fell to 50.8 from the 52.2 posted in April, missing expectations of 53.4. According to the same report, 1-year Consumer Inflation Expectations rose to 7.3% from the previous 6.5%, while 5-year expectations were also up, from 4.4% to 4.6%.
The German ZEW Survey on Economic Sentiment improved in May to 25.2 from -14 in April. However, the assessment of the current situation deteriorated from the previous -81.2 to -82, missing expectations of -77. Finally, the survey showed that Economic Sentiment in the Eurozone improved to 11.6 after posting -18.5 in the previous month. Additionally, Germany confirmed the April Harmonized Index of Consumer Prices at 2.2% YoY, as previously estimated.
Finally, the Eurozone released a second estimate of the Q1 Gross Domestic Product (GDP), which suffered a downward revision to 0.3% on a quarterly basis from the previous 0.4%.
Central bankers and growth coming up next
Multiple Fed speakers have been on the wires and will continue to flood the news feed in the upcoming days, although they will likely have a limited impact on the USD price. Besides that, the macroeconomic calendar will remain scarce until Thursday, when S&P Global and the Hamburg Commercial Bank (HCOB) will release the preliminary estimates of the May Purchasing Managers’ Indexes (PMI) for most major economies. Generally speaking, European business output is foreseen to remain tepid, with a modest uptick expected in services output. Manufacturing, on the other hand, is expected to remain in contraction territory.
EUR/USD technical outlook
The weekly chart for the EUR/USD pair shows that it keeps developing far above all its moving averages, with a firmly bullish 20 Simple Moving Average (SMA) about to cross above directionless and converging 100 and 200 SMAs at around 1.0830. At the same time, technical indicators retreated from overbought territory and aim modestly lower nearby, reflecting limited selling interest.
On a daily basis, the EUR/USD pair has spent the last three trading days confined to a tight intraday range, with upward spikes being quickly reverted. Other than that, the 20 SMA gains downward traction above the current level, providing resistance at around 1.1300, while the 100 and 200 SMAs keep grinding north far below the current level. Finally, technical indicators offer neutral-to-bearish slopes within negative levels, which is not enough to confirm another leg south, but instead reflects the absence of buying interest.
Beyond the 1.1300 mark, the pair may extend its recovery towards the 1.1380 region, where it topped early in May. Additional gains expose the 1.1460 price zone, en route to the year high at 1.1573. Buyers are currently aligned around 1.1160, with a break below the level opening the door for a retest of the May low at 1.1064, followed by the psychological 1.1000 threshold.
