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Arguments for euro gains
Forex
01/09/2019

Arguments for euro gains

The common currency resumed the rise on Wednesday after a brief retreat yesterday. EURUSD is still stuck in a range limited by the 1.14 barrier on the upside as bulls lack the incentive to make a clear break above the 100-DMA that caps the momentum since late-September.

The common currency resumed the rise on Wednesday after a brief retreat yesterday. EURUSD is still stuck in a range limited by the 1.14 barrier on the upside as bulls lack the incentive to make a clear break above the 100-DMA that caps the momentum since late-September. However, there are some arguments for euro gains in the medium term.

First, the dollar continues to lose its appeal amid signs of slowing growth, signals of Fed’s ‘flexibility’, and positive developments in US-China trade talks. Progress in negotiations fuels demand for riskier assets, discouraging USD safe-haven buying, while the continuing government shutdown over border funding adds to the downside pressure on the American currency.

Second, the euro shook off yesterday’s German industrial production data that was really bad. Production fell 1.9% in November versus +0.3% expected. Moreover, the previous reading was revised down to -0.8% from -0.5%. Interestingly, the EURUSD pair hardly reacted to the poor numbers, which could be a sign that the euro is getting more resilient and has found a cyclical bottom in November.

But it doesn’t mean that the euro will rally strongly from here as there are some downside risks as well, including Brexit developments, slowing growth in euro area, and the potential deterioration of risk sentiment. So it’s better to wait until the economic situation in the region and Fed’s position on tightening get clearer before buying the euro. Anyway, the single currency feels more comfortable at this stage and could challenge the 1.14 barrier in the short term.

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