- The EUR/USD ends a four-day winning streak with a drop.Â
- Concerns about Italy’s policies and global trade weigh on the pair.
- The technical picture is mixed, and the bulls may have to wait.
The EUR/USD fell to around 1.1770, suffering a day of losses after four consecutive days of rises and after climbing over 300 pips from the abyss of 1.1510. The pair enjoyed a clam market mood which is now coming to an end. Is it just a temporary correction? Not necessarily, as the pair has reasons to fall
1) Trump’s trade wars are finally felt
Markets are finally realizing that Trump’s three trade wars are not favorable for global growth, to say the least. The Administration is picking fights with China, the EU, and the NAFTA partners. Markets have been mostly ignoring it so far, but the atmosphere is becoming more hostile with Trump’s tweets. Falling stock markets boost the safe-haven Yen but also assist the greenback against the euro.
The G-7 Summit in Canada may see quite a clash between the world’s developed nations.
2) Italy flexing its muscle
After a big storm in markets last week, the successful formation of the Italian government provided some calm to markets. This calm was always destined to be temporary. Luigi di Maio, the head of the 5-Star Movement, the senior coalition partner, said that the third-largest economy in the euro-zone would ask for more EU funds.
Also, the new populist government remains keen on cutting taxes while increasing spending, a prospect that will set it on a collision course with its European counterparts. The Fiscal Compact is a source of grievance for both parties.
3) Weak German data
It had already seemed that the euro-zone economies were picking up after a lengthy winter slump that extended into April. Fresh data from Germany and France showed that things are not that great. German Industrial Output came out at a fall of 1%, far worse than a rise that was expected. French Industrial Production also dropped, by 0.5%, also falling short of predictions. A miss on Germany’s trade surplus was not helpful either.
It is becoming clear that even if the euro-zone sees stronger growth in Q2, the levels of 2017 will probably not return.
EUR/USD Technical Analysis
The EUR/USD continues trading alongside the uptrend support line (thick black line). However, it is getting dangerously close to the line. The RSI is balanced, and there is no clear Momentum. Nevertheless, there is a bearish sign from the “death cross.†The 50-day Simple Moving Average crossed the 200-day SMA to the downside. The pattern may prove decisive for the pair.
The pair is battling the 1.1767 level which was a line of support in mid-May. Lower, 1.1730Further down, 1.1648 was the low point on May 25th. It is followed by 1.1610, 1.1550 and 1.1510.
More: EUR/USD no longer bullish, has a clear range — Confluence Detector
