A daily digest that moves the market: Intensifying US-China trade tensions continue to negatively impact the US dollar
The EUR/USD pair increased for the third consecutive day on Thursday, reaching a one-week peak above 1.1650. Investors are worried about rising trade tensions between the United States and China, coupled with the ongoing federal government shutdown, which has shaken confidence in the dollar.
On Wednesday, President Trump didn’t help matters with his remarks on television, where he stated that the U.S. was already engaged in a trade war with China. Treasury Secretary Scott Bessent attempted to temper this view, suggesting that there might still be a possibility for an extension of the trade truce.
The Federal Reserve’s Beige Book released the same day echoed earlier sentiments from Chairman Jerome Powell, stressing that slow job growth results from companies grappling with trade tariffs. This situation strengthens the case for potential rate cuts in the upcoming months, intensifying the pressure on the U.S. dollar.
Looking ahead, the eurozone trade balance could offer some key insights for the euro, especially before European Central Bank President Lagarde’s upcoming speech. In the U.S. session, the Philadelphia Fed Manufacturing Index will be among the few economic indicators available this week, ahead of several upcoming speeches from Fed officials.
- The U.S. dollar remains under significant pressure as fears grow that escalating tensions could permanently damage trade relations between the world’s largest economies.
- Despite this, there’s some hope that next week’s meeting between President Trump and Chinese Prime Minister Xi Jinping might stabilize things and lead to an extension of the trade truce, which is set to end on November 1. However, the dollar might remain vulnerable until then.
- On Wednesday, the Federal Reserve noted that U.S. economic activity has proven resilient in recent months, although consumer spending has seen a decline. Job demand is still weak, influenced by economic uncertainty and rising costs from imports.
- According to Eurostat, Eurozone industrial production fell by 1.2% in August after a 0.3% increase in July. This was an improvement over market expectations of a more significant decline, resulting in minimal impact on the euro.
Technical analysis: EUR/USD is testing the channel top at 1.1670
The bullish momentum for EUR/USD gained traction on Wednesday as the price exceeded the neckline of a double bottom pattern at 1.1635. Typically, this suggests a trend reversal; yet, for the bulls to maintain this strength, they need to push past the resistance level at 1.1670, which is currently being tested.
The target derived from the double bottom pattern is near 1.1730, the high from October 6. Further resistance is expected around the high of October 1 at 1.1780, although that seems quite distant for Thursday’s goals.
If the price drops, the previous resistance at 1.1630 may serve as a support level near Wednesday’s low at 1.1600. A bearish movement below these marks could redirect attention to the lows recorded on October 9 and October 14 at 1.1542.
