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14 Oct 2019

EUR/USD stuck below 50-day MA despite US-China trade truce

  • EUR/USD remains below 50-day MA, having faced rejection at the key hurdle on Friday. 
  • Major investment banks warn that the latest US-China trade truce may be temporary. 

EUR/USD failed to close above the 50-day moving average (MA) on Friday and is trading below the key average at press time despite the US-China trade truce.

US President Trump on Friday announced a partial trade deal, sending the US Dollar lower across the board and risky assets higher.

As a part of the deal, the US has delayed a planned increase in taxes on $250 billion in Chinese goods, while China has to buy $40 to $50 billion in US agricultural products.

Even so, the trade optimism faded in Asia, keeping the EUR/USD sidelined around 1.1030 and below the 50-day MA at 1.1044, as prominent investment banks voiced concerns about the reliability of the latest trade deal.

Without a durable dispute settlement mechanism in place, another round of tariff increases cannot be ruled out, Morgan Stanley analysts warned, according to CNBC.

Meanwhile, Goldman Sachs said there is a 60% chance that the announced 15% tariffs will take effect, but not until early 2020 as opposed to the current deadline of Dec. 15.

JP Morgan said the first phase of the deal is a positive, but the outcome is not a surprise for the market.

The US Dollar, therefore, may gain ground due to "sell the rumor, buy the fact" trade. The downside, however, looks limited, as the EUR/GBP is currently flashing green amid fading Brexit optimism.

The EUR/USD pair may have another go at the 50-day MA hurdle if the Eurozone Industrial Production for August, scheduled for release at 09:00 GMT, beats expectations by a big margin. The market may also take cues from the speech by the European Central Bank's (ECB) De Guindos, scheduled at 07:15 GMT.

Trading volumes will likely be thin as the US trading desks are observing Columbus Day holiday.

Technical levels

 

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