At the start of the week, euro was dragged down by trade uncertainty but the pair managed to finish the day in the green. On Tuesday, EURUSD resumed the downside move and registered fresh mid-October lows at 1.1012, threatening the 1.10 handle. A break below this level will open the way a deeper decline in the short and medium term.
On the data front, German ZEW sentiment data beat expectations and came in at -2.1 versus -13.2 expected. However, the report failed to inspire the bulls as traders are positioning for the upcoming Trump’s speech on China and a possible trade deal.
Some local pressure on the common currency came from the ECB’s Coeure comments. The central bank’s official noted that the monetary authorities are committed to continue quantitative easing for as long as necessary. Despite there is nothing new in this statement, the fact that the Federal Reserve signaled a pause in cutting rates last month highlights some divergence in the central banks’ monetary policy, which plays against the euro.
As markets brace for Trump’s speech, dollar demand picked up recently as traders probably prefer to cut risky positions ahead of an important event. Depending on the tone by US President, EURUSD could stage an aggressive move in either direction. The latest reports suggest that Trump will be making a “constructive statement” on China. If so, risk sentiment will improve further across the board.
In this scenario, the single currency could be rejected from more than one-month lows and jump above the 1.1050 area. But the knee-jerk reaction could be too aggressive and some profit taking may come afterwards. Anyway, it’s reasonable to expect a pickup in volatility across the global financial markets later today.
On the upside, the euro bulls need to take the pair above the 1.1065 zone to secure a test of the 100-DMA marginally above the 1.11 handle. Once above this moving average, the technical picture for the euro will improve substantially. However, EURUSD will need a decent driver to preserve the possible gains. At the moment, the downside risks are still in place and the euro bears remain in play.