EU FINANCE MINISTERS, IRAN TENSIONS EURUSD TECHNICAL ANALYSIS– TALKING POINTS
- EURUSD renters 18-month descending resistance range
- If fundamental risks worsen, traders likely to flock to USD
- Growing tensions in Iran may cause EURUSD to suffer
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SPARSE ECONOMIC DATA LEAVES EURUSD TRADERS EYEING FUNDAMENTAL RISKS
In the absence of major economic indicators, EURUSD will likely focus its attention on fundamental risks and immediate but low-profile events like the Economic and Financial Affairs Council (Ecofin) meeting today. The monthly meeting in Brussels will be attended by various economic and finance ministers from each European member state and will involve discussing the multiannual financial framework package for 2021 through 2027, and a replacement for the IMF Director.
Christine Lagarde – who previously held that position – will be stepping down from her post and replacing Mario Draghi as the President of the ECB after he departs on October 31. Eerily enough, not only is this Halloween but also it is the deadline for the UK to decide on its future relationship with the EU. The meeting is not likely to elicit strong volatility, but internal commentary may warrant traders’ attention.
Sparse economic data also leaves the Euro exposed to traders re-assessing the risks associated with US-EU policy towards Iran. On July 8, Iran breached its uranium enrichment purity levels, opening the door to more aggressive action from the US. This puts the EU in a tricky place: Should they risk enduring US sanctions from attempting to preserve the 2015 nuclear agreement?
Or do they abandon their efforts to mitigate Iran’s economic woes and join Washington in punishing them for breaking the nuclear accord? Brussel’s credibility for helping Tehran is being undermined by its pursuit of enriching uranium past the stipulated limitations. At a time when cross-Atlantic relations remain fragile, an escalation of tensions could result in an economic conflict at a time when the global economy is slowing.
EURUSD TECHNICAL ANALYSIS
Looking at the DXY US Dollar index, the two biggest moves came from last week’s release of better-than-expected US ISM manufacturing data and growth in non-farm payrolls. Both publications caused the Greenback to surge and subsequently pressured EURUSD lower. The pair is now hovering in the 18-month descending resistance range (red parallel channel) after briefly breaking above earlier in June.
If fundamental risks continue to mount, markets may put a premium on liquidity which may lead to a flood of capital being directed to the US Dollar. This downward movement from this could then be amplified if the outlook for the Euro becomes decidedly worse. For instance, if US-EU relations crumble over Iran and lead to sanctions or a trade war, the risk aversion and flood of capital out of the Euro would likely cause EURUSD to fall further and even below the lower lip of the channel.
CHART OF THE DAY: WILL EURUSD CAPITULATE, FALL UNDER CRITICAL RESISTANCE?
EURUSD TRADING RESOURCES
— Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter