- EUR/USD dips as lingering US-China tensions bode well for the US dollar.
- Technical indicators suggest scope for a re-test of the lower end of the multi-week trading range.
- Deeper losses may remain elusive if the German IFO numbers beat estimates.
EUR/USD is looking to extend its two-day losing run on Monday amid the broad-based demand for the American dollar. Even gold, a classic safe-haven asset, is trading under pressure despite the lingering US-China concerns.
The currency pair is currently trading near 1.0888, representing marginal losses on the day, having declined by 0.27% and 0.45% on Thursday and Friday, respectively.
The dollar is in demand and growth-linked currencies like the AUD and CNH are struggling to gain ground due to the escalating US-China tensions. China’s foreign minister, on Sunday, accused Washington of damaging the relationship with Beijing and pushing the two nations toward a “new cold war”.
The Trump administration has repeatedly attacked Beijing over its handling of the coronavirus outbreak over the past couple of weeks. Further, China’s plan to impose a new National Security law on Hong Kong has irked Washington.
As a result, EUR/USD could continue to lose altitude in the short-term, more so, technical studies indicate scope for a drop to the lower end of the multi-week trading range of 1.0730-1.1020.
The single currency, however, will likely change course if the forward-looking German IFO Expectations Index (May), scheduled for release at 08:00 GMT, rises more-than-expected. The index is forecasted to tick higher to 75 from April’s reading of 69.4. Note that the forward-looking German ZEW survey of expectations rose to five-year highs in May. The final reading for Germany’s first-quarter GDP is also scheduled for release at 06:00 but is unlikely to have a big impact on the EUR pairs.
BK Asset Management’s Kathy Lien expects the single currency to outperform especially as we look forward to improvements in German business confidence. Meanwhile, Nordea analysts favor playing the outside chance of a breakthrough in the Franco-German debt proposal via long EUR/USD structures in option space.
Investors think the debt proposal would be rejected by the European Union, as Denmark, Sweden, Austria and The Netherlands are all firmly against it. According to the poll conducted by Jens Nordvig, a Ph.D. Economist & the Founder of Exante Data, LLC, most investors expect a watered-down plan at the EU-27 summit.