In late April, the U.S. stock indexes placed new record highs, but the escalation of the US-Sino trade dispute has forced many global equity markets in the red through the month of May.
Whereas the deleveraging of G-7 stocks was almost centralised just after the latest development in U.S. tariffs, the recent addition of the Chinese Telecom titan Huawei to the blacklist has extended the range of the market’s selloff. There has always been an influential association between equity markets and Forex rates. While stock exchanges are following selling pressure, the USD and JPY recover as investors recognise those currencies as safe havens from the market turbulence.
In the prevailing market situation, the USD is also attracting investment flows from the positive interest rate differential that the Greenback holds versus other G-7 pairs.
Even without the supplementary haven flows, traders are now regarding the central banks of New Zealand, Australia and also the ECB signal to the market that further stimulus and additional rate cuts are in the pipeline, which will further widen the rate advantage to the USD.
US Gross Domestic Product – 12:30 (GMT)
According to the first release of GDP, the U.S. economy expanded by 3.2%, better than anticipated, but coming on the head of soft inflation. An insignificant decline to 3.1% is expected now, and the deflator will be strictly watched once again. Amongst the segments, personal consumption and exports are deemed positive factors, while inventories and government spending are less desirable.
EUR/USD Testing Triple Bottom – Eyes on 1.1125
The EUR/USD pair is trading bearish for the third-day in-a-row, and it could post the lowest daily close in a couple of years. On Wednesday the Euro has been continuously declining versus the U.S. dollar, hitting new lows every session. Recently bottomed at 1.1123 and it trades at 1.1130, consolidating losses.
EURUSD investors will be excited ahead of the announcement of US GDP versus the backdrop of soaring political strains between the E.U. and U.S. over policy toward Iran. Estimates have annualised quarter-on-quarter GDP at 3.0%, insignificantly weaker than the previous version at 3.2%.
Therefore, GDP figures may drive higher-than-usual levels of volatility because of its potential to change the Fed away from its neutral approach to one that leans more hawkish or dovish.
EUR/USD – Technical Analysis
From a technical viewpoint, failure to violate the 1.1200 figure has improved chances of a bearish extension, with the EUR/USD pair currently selling just above the 50% retracement of its latest daily run, measured between 1.1106 and 1.1214.
In the 4 hours chart, the pair split below its moving averages, with the 20 EMA advancing and the 200 EMA, both consolidating around the 23.6% retracement of the same level at 1.1190, the immediate resistance.
Technical indicators have continued to trade bearish, entering the negative region, all of which skews the risk to the lower side and favours a re-test of the multi-year low at 1.1106.
Support and Resistance
Key Trading Level: 1.1144
EUR/USD – Trade Tips
Today, 1.1130 is likely to be a significant trading level. Thus, consider staying bearish below 1.1130 and bullish above the same level. The bearish target will be 1.1101, and the bullish target is likely to be 1.1165. All the best!