EUR/USD is trading around 1.1120 1.1140, gradually extending earlier gains. The first move higher this week came on the back of a Greek agreement. While doubts remain about a deal, the focus has shifted to a bigger global story: China.
A second day of Chinese devaluation causes a scare in global markets. And the euro, which has become a funding currency thanks to the ECB’s policy, might be seeing money coming back home.
Chinese effect on EUR
This is the logic: a negative interest rate (since June 2014) and a QE program (since March and to September 2016) are both motivating investors to take loans in euros and invest the money outside the euro-zone. Keeping money in the zone is being “punishedâ€. That’s what pushed money outside the euro-area.
The money reached risky assets, including emerging markets, that provided higher returns.
But now, effect of the big Chinese devaluation (that came after the euro devaluation, the yen devaluation and many others) is hurting China and other emerging markets.
So, the money is being repatriated back to the old continent.
Apart from that, there is nothing euro-related or US dollar related making the move right now.
EUR/USD
At this level, the pair is above the July 27th high and the highest in a month, since the infamous July 13th aGreekment.
After resistance at 1.1130 has been taken, the next level is 1.12. On the downside, we have 1.1050 as serious support.
More:
- EUR/USD: Relief Rally – JP Morgan
- EURUSD Trades Higher, German DAX Looks For Support – Elliott Wave Analysis
Here is how it looks on the chart:
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