EUR/USD Under Bearish Pressure
EUR/USD turns negative as French cabinet fails to convince markets
EUR/USD has returned below 1.1600 in the early European session on Monday and is trading at 1.1590 at the time of writing. Investors' concern about the consequences of a trade war between the United States and China has dampened risk appetite, while doubts about the chances of success of France's new cabinet remain weighing on the Euro (EUR).
The United States Dollar dropped on Friday after the President of the United States threatened 100% tariffs on Chinese imports to begin on November 1, after the Asian country announced curbs on rare earths' exports. The President of the United States, however, softened his tone on social media on Sunday, suggesting that the additional levies will not come into effect, which has calmed fears somewhat.
Meanwhile, in Europe, the focus remains in France, where President Emmanuel Macron reappointed Sébastien Lecornu as Prime Minister, one week after his resignation. Lecornu has named Macron's close ally, Roland Lescure, as Finance Minister, who will have the challenging task of passing a belt-tightening budget through the parliament.
Trading volumes might be somewhat lower on Monday as the United States markets are closed for the Columbus Day holiday. In the economic calendar, a slew of central banks' policymakers, including European Central Bank (ECB) President Christine Lagarde, will provide the fundamental guidance.
The President of the United States’ Friday announcement to impose 100% tariffs on Chinese goods from November 1 revived fears of a new trade war escalation, triggering a moderate reversal in the United States Dollar and allowing the Euro to recover from its lows. The President calmed fears on Sunday with a soothing comment on social media, but the Chinese authorities remain firm and have shown their willingness to retaliate if export levies are increased.
China has defended its restrictions on rare earths' trade to Western countries and the military industry, and the Commerce Ministry said they were introduced in the talks held in Madrid last month. The ministry also added that they are not afraid of a possible trade war and that they will introduce countermeasures if the 100% levies announced by the President of the United States are finally applied.
On Sunday, the President of the United States wrote on Truth Social: "Don't worry about China, it will all be fine! Highly respected President Xi just had a bad moment." These comments have eased concerns of a full-blown trade war, but markets are likely to remain cautious, awaiting further developments.
On Friday, the United States Michigan Consumer Sentiment Index posted a 55.0 reading for October, slightly below September's 55.1, yet above the market expectations of further deterioration to 54.2. The United States Dollar reacted positively to the news.
The economic calendar is light on Monday. The most relevant event will be a meeting of G20 finance ministers and central bankers, where ECB President Lagarde will participate, at the IMF/World Bank annual meeting in Washington.
EUR/USD has failed to remain above the 1.1600 level and is under bearish pressure again. The Relative Strength Index (RSI) on the 4-hour chart has been capped below the 50 level, and the Moving Average Convergence Divergence (MACD) is now turning lower, which suggests that the rebound from Friday's lows has lost steam.
A confirmation below the previous intraday lows around 1.1590 increases pressure towards the October 9 and 10 lows in the area between 1.1645 and 1.1660 ahead of the base of the descending channel, at the 1.1525 area. To the upside, resistance is at the mentioned intraday high of 1.1630. Further up, the top of the descending channel comes at the 1.1690 area, and next is the area between 1.1720 and 1.1730, where price action was capped on October 6.