Euro: USD/EUR (EUR=X) trade war and risk of currency conflict threaten global economy

Euro: USD/EUR (EUR=X) trade war and risk of currency conflict threaten global economy

Euro: USD/EUR (EUR=X) trade war and risk of currency conflict threaten global economy

The Euro reversed its earlier course and drifted lower on Tuesday as the Dollar rebounded from its previous slump but the exchange rate is still being tipped as a sell by strategists at TD Securities, who say the single currency is likely to suffer as fears for the global economy rise. 

Europe’s unified unit is sensitive to changes in the pulse of the global economy, which is now seen as likely to slow further in the months ahead as the trade conflict between the U.S. and China escalates. The U.S. said last week it will impose fresh tariffs on imports from China as of September 01. 

This risks hurting an already-weakened Eurozone economy, which grew by just 0.2% during the second quarter and is forecast by the European Commission to grow just 1.2% for overall, which implies a fall from last year’s 1.8%. Eurozone GDP growth slowed sharply in 2018 too, from 2.3% previously. 

Some analysts say Monday’s response from the single currency and the possibility of further weakness in the Renminbi mean the risks for the Euro-to-Dollar this week are both to the up as well as downside. In other words, it might not be a good idea to bet in either direction on that exchange rate, even if the Eurozone’s fundamentals do argue for a lower Euro. 

“Apart from the medium-term view that USDRMB is a “buy on dips”, our short-term assumption is that USDCNH will trade in a 7.05/7.15 range for the time being, which effectively means we’ve assumed a “risk-neutral-to-risk-off” profile (i.e. there is more USDRMB topside in that range than downside). Until we can say that this phase of the trade war has “settled down”, it’s tough to take a firm position in EURUSD spot; it could go either way,” writes Stephen Gallo, European head of FX strategy at BMO Capital Markets, in a note to clients. 

Overall, the bias in prices is: Sideways.

By the way, prices are vulnerable to a correction towards 1.12.

The projected upper bound is: 1.13.

The projected lower bound is: 1.11.

The projected closing price is: 1.12.

Candlesticks

A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 7 white candles and 3 black candles for a net of 4 white candles. During the past 50 bars, there have been 27 white candles and 23 black candles for a net of 4 white candles.

An engulfing bullish line occurred (where a white candle’s real body completely contains the previous black candle’s real body). The engulfing bullish pattern is bullish during a downtrend. It then signifies that the momentum may be shifting from the bears to the bulls.

If the engulfing bullish pattern occurs during an uptrend (which appears to be the case with FOREX EUR=), it may be a last engulfing top which indicates a top. The test to see if this is the case is if the next candle closes below the top of the current (white) candle’s real body.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 85.1970. This is an overbought reading. However, a signal is not generated until the Oscillator crosses below 80 The last signal was a buy 7 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 53.16. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 254 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 97. This is not a topping or bottoming area. The last signal was a buy 3 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 1 period(s) ago.

Rex Takasugi – TD Profile

FOREX EUR= closed up 0.002 at 1.122. Volume was 5% above average (neutral) and Bollinger Bands were 17% wider than normal.

Open     High      Low     Close     Volume___
1.120 1.124 1.118 1.122 96,428
Technical Outlook 
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bearish
Moving Averages: 10-period     50-period     200-period
Close: 1.11 1.12 1.13
Volatility: 7 7 7
Volume: 87,618 78,875 121,439

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

FOREX EUR= is currently 0.7% below its 200-period moving average and is in an downward trend. Volatility is extremely high when compared to the average volatility over the last 10 periods. There is a good possibility that volatility will decrease and prices will stabilize in the near term. Our volume indicators reflect volume flowing into and out of EUR= at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on EUR= and have had this outlook for the last 21 periods. Our momentum oscillator has set a new 14-period high while the security price has not. This is a bullish divergence.

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