The EUR/USD pair slipped back below the 1.1600 level in the early hours of European trading on Monday and is currently around 1.1590. Investors seem worried about the implications of the US-China trade conflict, which is, to some extent, souring risk sentiment. Additionally, uncertainty surrounding the effectiveness of France’s new government is also weighing on the euro.
On Friday, the US dollar experienced a decline following President Trump’s threat to impose 100% tariffs on Chinese imports starting November 1, in response to China’s announcement of limitations on rare earth exports. However, Trump’s tone softened on social media over the weekend, hinting that the additional tariffs may not happen, which alleviated some concerns.
In Europe, the spotlight remains on France, where President Emmanuel Macron has reinstated Sébastien L’Ecornu as prime minister just a week after his resignation. L’Ecornu is expected to appoint his ally Laurent Lescure as finance minister and face the challenging task of advancing a contentious budget through parliament.
Trading volumes could be somewhat muted on Monday due to US markets being closed for the Columbus Day holiday. The economic calendar will offer insights from various central bank figures, including European Central Bank President Lagarde.
Daily Digest That Moves Markets: Trade War Concerns Hinder USD Recovery
- President Trump’s tariff announcement on Friday reignited fears of escalating trade tensions, causing a slight downturn in the U.S. dollar while allowing the euro to rebound slightly. Although Trump reassured the market on social media on Sunday, Chinese authorities have indicated their readiness to retaliate against any export tax increases.
- China defended its restrictions on rare earth exports to Western nations and the military sector, explaining that these measures were introduced during recent discussions in Madrid. The Commerce Department emphasized its preparedness for a trade war and stated it would implement countermeasures if Trump’s 100% tariff becomes a reality.
- On Sunday, Trump stated on Truth Social: “Don’t worry about China. Everything will be alright! President Xi Jinping just had a rough moment.” While these remarks have somewhat eased fears of an all-out trade war, markets are still likely to proceed cautiously, anticipating further updates.
- On Friday, the U.S. Michigan consumer confidence index for October recorded a score of 55.0, slightly down from 55.1 in September but above the expected figure of 54.2, which indicated further decline. This news had a positive reaction for the US dollar.
- Looking ahead, Monday’s economic agenda appears promising, with the G20 Finance Ministers and Central Bank Governors’ Meeting being the highlight, where ECB President Lagarde will also participate during the IMF/World Bank Annual Meeting in Washington.
Technical analysis: EUR/USD is under bearish pressure from 1.1600
The EUR/USD pair is currently struggling to maintain momentum, as it couldn’t rise above the 1.1600 mark and is facing renewed bearish pressure. The Relative Strength Index (RSI) on the 4-hour chart rests below the 50 threshold, and the Moving Average Convergence Divergence (MACD) has turned downward, indicating that the brief recovery from Friday’s drop is losing strength.
If the price confirms below the previous intraday low close to 1.1590, it could increase pressure towards the recent lows from October 9th and 10th, situated between 1.1645 and 1.1660. This area precedes the 1.1525 level, marking the bottom of the declining channel. On the upside, resistance is noted at the earlier intraday high of 1.1630. If the bears are subdued, the peak of the descending channel appears at around 1.1690, followed by the range of 1.1720 to 1.1730, which limited price movements earlier on October 6th.
