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Euro Slides and US Dollar Soars as China Face Further Restrictions. New lows for EUR/USD?

Euro Slides and US Dollar Soars as China Face Further Restrictions. New lows for EUR/USD?

Daniel McCarthy, Strategist

Euro, EUR/USD, US Dollar, China, BA.5, Japan, LDP, USD/JPY - Talking Points

  • The Euro dived as US Dollar demand surged on economic outlook fears
  • APAC equities, commodities and their related currencies are mostly lower
  • Japan’s stocks found support.Will a technical signal trigger a EUR/USD reversal?

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The Euro is under pressure to start the week as demand for US Dollars picked up steam on concerns for global economic growth.

The scramble into the ‘big dollar’ was attributed to fears of further lockdowns in China. Shanghai reported its first case of the latest highly contagious variant of Covid-19, BA.5 omicron. APAC stocks are lower as a result, with the exception of Japan.

An election result over the weekend saw Japan’s Liberal Democratic Party (LDP) gain a stronger hold in the House of Councillors, the upper house of Japan’s parliament. This was interpreted as a vote of confidence in maintaining ultra-loose monetary policy.

Consequently, the Nikkei 225 index got a boost and Yen weakened, with USD/JPY printing a fresh 24-year high above 137.00. 10-year Japanese Government bond (JGB) yields remain anchored near 0.25%.

The commodity and growth linked AUD, CAD, NOK and NZD all weakened to start the week. US equity futures are pointing toward a negative start for the Wall Street cash session on Monday.

Iron ore and copper are lower again while gold remains steady near US$ 1,742 an ounce. Crude oil slipped, with the WTI futures contract under US$ 104 bbl and the Brent contract around US$ 106.50 bbl.

It is a slow start to the week data wise, but there are a number of key events listed below that are coming up in the days ahead.

EventDate, Time (GMT)
Eurozone Economic SentimentTues, 09:00
US Consumer Inflation ExpectationsTues, 15:00
RBNZ Rate decisionWed, 02:00
US CPIWed, 12:30
BOC Rate DecisionWed, 14:00
Earnings – JPM, MS, TSMThur, 11:30
China GDPFri, 02:00
UofM ConfidenceFri, 14:00

The full economic calendar can be viewed here.

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EURUSD Technical Analysis

The Euro bounced off the 161.8% Fibonacci Extension at 1.0079 to end last week. That level might provide support if it is tested again. That is a 20-year low for EUR/USD.

Friday also saw a Bullish Hammer emerge after the dip created a new low before rallying and closing above the open. Note that the wick is more than twice the length of the candle body.

On the topside, resistance might be offered at 1.0340 – 1.0360 area where a number of break points lie.

EURUSD CHART

Chart created in TradingView

--- Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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