A must watch level on EUR/USD

Essential Insights

• Increased Risk Appetite
• US-China Tensions Increasing
• Euro Underpinned By Stronger Dollar

Technical

EUR/USD is at a major technical decision zone, at around 1.09870.

Prior price action shows a fall below this level, tends to see this pair moving down to around 1.08150. Although prices penetrated through the 1.09870 zone, they still closed back within the zone, suggested lack of bullish momentum.

The current 4-hour candle is testing the zone once again, a candle close above the zone could see the previous high at 1.10190 being met. Alternatively, a close below the zone is likely to see prices retreat back to 1.08150.

A break and close above the 800-Day SMA at 1.09975 could signify a bullish scenario whilst a close below the 800-Day EMA at 1.09750, is likely to see prices fall.

Fundamental

Further tensions between the US and China have lead to less risk appetite in markets, this has been supplemented by USD buying with riskier currencies such as NZD & AUD, falling.

Trump lashed out on China over twitter calling their disinformation and propaganda attacks on Europe and the US as a ‘disgrace’. He also criticised Chinese President Xi Jinping, citing that the pandemic was his responsibility as it could have been stopped and that everything goes to the ‘top’.

The US Senate has now passed a new bill to Chinese companies, this may require Chinese companies to delist from the US stock exchanges and it would require Chinese companies to demonstrate/prove that they are not influenced by any government.

We know that the Chinese Government has had an influence on Chinese companies. Most noticeably evident, when the Chinese government was using tech giant Huawei to conduct illegal surveillance on US companies. A move that Trump has always used as an undercard to threaten China.

It is likely China will begin to retaliate, triggering less risk appetite in the market and a risk-off environment. This could see the further appreciation of the US dollar and consequently a fall in EUR/USD. The Euro still remains underpinned as the worst-performing G-10 currency.