The Euro is trading higher against the U.S. Dollar on Monday after China imposed a 25% tariff on $60 billion of U.S. imports. The move is in retaliation to the U.S. decision on Friday to impose a 25% tariff on $200 billion of China imports.
It’s not the new tariffs per se that are driving the Euro higher, but rather what an escalating trade war can do to the U.S. economy. If the trade war weakens the U.S. economy enough to cause a recession, then the Federal Reserve will be forced to cut its benchmark interest rate. The U.S. Dollar will become a less-desirable asset if the Fed cuts rates. This will drive the Euro higher. Today’s price action indicates that some investors are already pricing in a Fed rate hike for later in the year.
At 13:06 GMT, the EUR/USD is trading 1.1259, up 0.0025 or +0.22%.
Daily Technical Analysis
The main trend is down according to the daily swing chart. A trade through 1.1265 will change the main trend to up. The next upside target then becomes the April 12 top at 1.1324.
A trade through 1.1135 will signal a resumption of the downtrend, followed by a pair of main bottoms at 1.1112 and 1.1109.
The main range is 1.1448 to 1.1112. Its retracement zone at 1.1280 to 1.1320 is the next upside target.
The short-term range is 1.1324 to 1.1112. Crossing to the strong side of its retracement zone at 1.1243 to 1.1218 turns this zone into support.
The major support is the long-term Fibonacci level at 1.1185.
Daily Technical Forecast
Based on the early price action, the direction of the EUR/USD the rest of the session is likely to be determined by trader reaction to the downtrending Gann angle at 1.1258. This angle essentially stopped the rally earlier in the session.
A sustained move over 1.1258 will indicate the presence of buyers. Taking out 1.1265 will change the main trend to up. This could lead to a test of a downtrending Gann angle at 1.1272, followed by the main 50% level at 1.1280.
Overtaking 1.1280 could trigger an acceleration to the upside with the next target the main Fibonacci level at 1.1320, followed by the main top at 1.1324.
A sustained move over 1.1258 will signal the return of sellers. The first downside target is the short-term Fibonacci level at 1.1243, followed by an uptrending Gann angle at 1.1222 and the short-term 50% level at 1.1218. This is the trigger point for an acceleration to the downside.
This article was originally posted on FX Empire
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