EUR/USD Daily Price Forecast – EURO Bulls Active as Trading Session Opens For the Week

The pair looks to extend its recovery triggered the past week in the new week. EUR/USD rallied to 1.1738 the high, closing at 1.1719 on Friday as the pair traded through the 10, 21 & 55-DMAs last week and is now en route for a test of the July high at this rate, which is located at 1.1790. The market is making further adjustments to the overall positioning in the US dollar, suspecting that the Trump administration is about to ignite a full-on currency war after Trump tweeted his displeasures over the EU and China, calling them out as currency manipulators. Trump has retaliated by threatening sanctions on $500bln in Chinese exports to the US last year. However, it is worth noting that a full retracement of the USD/CNY’s 2016-18 fall, which is well underway and worth 11.5%, should offset the effect of those tariffs – hence Trump’s frustration with rising US rates and USD.

EURUSD Back Higher

The demand for the EUR puts has dropped sharply in the run up to this Thursday’s European Central bank (ECB) rate decision and Draghi presser. The one-week 25 dealt risk reversals are being paid at 0.475 EUR puts–the highest level since early June. More importantly, the risk reversals were paid at 1.00 EUR puts on July 19. The decline from 1.00 to 0.475 indicates a falling implied volatility premium or falling demand for the cheap out of the money EUR put options and could be an indication the investors are expecting Draghi to shrug off trade war fears and reiterate commitment to end QE program in December. That said, the record US-DE (German) yield differential could limit the upside in the common currency. As of writing, the 2-year yield spread is hovering at 322 basis points – the highest since 1990.

The Euro is unlikely to get help from Mario Draghi and the ECB this week as policy is on a (mostly) preset course until at least June 2019. Rising trade tensions with the United States coupled with meandering inflation expectations means traders should keep expectations for any change in policy very low. European macro calendar remains silent for the day while US markets will see release of  Existing home sales data which has hawkish forecast. Starting on Tuesday, the preliminary July PMI readings for Germany and the broader Eurozone should provide a spark for price action. Typically these data releases generate a good deal of interest, although it is worth noting that the lack of meaningful change between the final June PMIs and the preliminary July PMIs may dampen the prospect for a significant move in EUR-crosses. On Wednesday, the German IFO survey for July release draws attention, although once again the lack of significant change expected in the readings limits the potential impact on markets. Expected support and resistance for the pair are at 1.1708, 1.1575, 1.1508 and 1.1791, 1.1852 , 1.1959 respectively.