Critical Day for EUR/USD as Political Uncertainty Dominates

Alan Penny

9 May 2019

2 min read

The EUR/USD dipped below 1.1200 as news broke of North Korean projectiles being fired on Thursday. This further disrupted the pair during a week which has so far been dominated by uncertainty in relation to the US-China trade deal. Delegations from both sides are due to meet on Thursday, with increasingly aggressive rhetoric coming from President Trump.

US Economy in a Good Place

The Euro had held relatively strong over the recent period of turmoil. This includes the protracted Brexit negotiations. Today’s slip is one of the first major signs that the market may be losing confidence. There has been a particularly strong emphasis placed this week on the US-China trade talks.

The Federal Reserve Vice Chair, Richard Clarida, spoke positively this morning about the US economy. He reiterated that the economy was “in a good place”. This follows hot on the heels of strong statements from President Trump.

He has insisted that China “broke the deal”.  Meanwhile he continues his vow to double Chinese trade tariffs on Friday. This is all presuming that a deal cannot be reached today. Many had viewed this rhetoric as negotiation posturing from Trump, although today’s markets tell a different story, as equities also fall around the world.

EUR/USD Outlook as Talks Loom

From a technical perspective, the EUR/USD, although hitting a fresh annual low, retains the confidence of analysts to stop the slide. For the time being, the point around 1.1215 has become an area of immediate resistance. The downside is protected by a support of around 1.11170.

The next movements will depend very much upon the outcome of trade talks.Even positive economic data from Germany has been sidelined with the Asia-based trade concerns. A positive result from the talks would almost certainly see the EUR/USD rally above 1.1300 again, while a negative or uncertain outcome could continue the present downturn.

Asian Markets Also Feel the Impact

Global equities were all trending lower on Thursday. British, French, and German indices were all down between 0.45%-1.25%. The hardest hit, unsurprisingly though, were the Asian markets. The sentiment within these markets is further hampered by the news coming from North Korea that they have launched some, as yet unidentified “projectiles”. The potential for volatility on the Korea on peninsula, adding to the weekly woes surrounding the trade talks. This led the Korean Kospi to a loss of more than 3% in early Thursday trading. Samsung and SK Hynix were leading these losses, with 4% and 5% slides respectively. Indices in Hong Kong, and Japan, both followed with negative numbers.

The key takeaway from today, and the entire week, is that a lot more relies on the much awaited US-China trade talks than the EUR/USD level. Many will be hoping that the aggressive tone struck by the US gives way during negotiations to a positive deal for both sides. The reduction or removal of any tariffs is likely to see a positive rebound from almost all markets.

Written By
Alan Penny

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