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EURUSD Rate at Support Ahead of Trump Auto Tariffs Decision

EURUSD Rate at Support Ahead of Trump Auto Tariffs Decision

Rich Dvorak, Analyst

EURUSD – TALKING POINTS

  • EURUSD looks coiled and ready for a sizable move if its inertia can be overcome
  • Tariffs on EU autos, if enacted, could send EURUSD swooning as trade wars spread
  • Spot prices are currently treading water above technical support at the 1.12 handle

EURUSD has advanced modestly so far today, up 0.17 percent, after lower-than-expected US inflation data weighed negatively on the dollar. The year-over-year headline CPI number for April crossed the tape at 2.0 percent versus Bloomberg’s median consensus of 2.1 percent.

In the follow-up press conference to the Fed meeting last week, Fed Chair Jerome Powell stated that tepid inflation was ‘transitory’ which initially boosted the greenback as markets subsequently reduced odds of an interest rate cut.

EURUSD PRICE CHART: 4-HOUR TIME FRAME (APRIL 11, 2019 TO MAY 10, 2019)

EURUSD Price Chart EU Auto Tariffs

Consequently, this morning’s data appears to have solidified EURUSD’s rebound off support at the 1.12 handle following the rip higher in spot prices which briefly eclipsed the 1.1250 level. The recent advance looks like EURUSD has broke above its short-term downtrend resistance formed by the series of lower highs illustrated above.

Further gains in EURUSD could be limited, however, as the 1.1250 price could serve as resistance. This area also aligns with the 61.8 percent Fibonacci retracement line drawn from April’s high and low.

EURUSD PRICE CHART: WEEKLY TIME FRAME (DECEMBER 11, 2016 TO MAY 10, 2019)

EURUSD Price Chart EU Auto Tariffs

Taking a look at the EURUSD weekly chart, the area of confluence between 1.12-1.15 and prevailing downtrend appears more prominent. Spot EURUSD is currently teetering around support at the 61.8 percent Fibonacci retracement level drawn from the low and high recorded in January 2017 and February 2018 respectively, but downtrend resistance is close in sight.

While better-than-expected data out of the EU and muted US inflation has bolstered EURUSD as of late, forex traders will likely turn their focus to the decision on whether or not President Trump will raise auto tariffs by the Commerce Department's deadline assigned to Trump roughly 3 months ago. The official deadline for the Section 232 review process of auto imports is May 18, but a decision could be announced anytime before that cutoff.

Slapping tariffs on EU auto exports to the US would likely harm Eurozone economic growth - particularly the likes of Germany - considering the US was the largest destination for EU auto exports last year. Therefore, if US President Trump ends up levying tariffs on EU aus in a sweeping extension of the trade war, EURUSD has potential of coming under renewed downward pressure.

- Written by Rich Dvorak, Junior Analyst for DailyFX

- Follow @RichDvorakFX on Twitter

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

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