EURUSD – It’s all about the risk appetite.

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04/03/2019
  • EURUSD is bottoming out at 1.1175, 1.1200/15 as oversold conditions remain and “bullish engulfing” arises on the daily chart.
  • It’s a pivot point in terms of risk appetite as green shoots in macro data, further progress in the US-China trade talks and also Brexit process can be a game changer and a sign of more stable global environment.  
  • The greenback is vulnerable to Nonfarm payrolls on 5 April, FOMC Meeting Minutes and EU summit (Brexit) on 10 April. 
Technical analysis
Everything can be seen on the daily chart of EURUSD from a false break beyond 1.12 to oversold conditions (the greenback strengthened during eight of previous nine trading days) and “bullish engulfing” in terms of candlestick patterns. Taking those factors into account, we see EURUSD corrective recovery to extend up to 1.1300/40. Earlier this week we saw EURUSD pair staying subdued at 1.1250-1.13 but significant changes in risk appetite convinced us of a more sustain bounce. 

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EURUSD (Daily)

Fundamental analysis
The EUR fall as a victim of worsening risk appetite during previous two weeks (1.1445-1.1175) as inversion of the US bond yield curve took place and the U-turn in monetary policy of G7 central bank could be seen as a sign of coming more prolong slowdown.  

Now we see signs of stabilizing situation with risk appetite that even if not sustainable can still bring some respite in April limiting downside in EURUSD. At first, there are green shoots and real changes in macro data from hopeless to hopeful as manufacturing activity (PMI mfg, ISM mfg) surpassed expectations in March in the US and China on Monday. Further respite came from data on Wednesday as Caixin China PMI Services hit the highest reading since January 2018 and both PMI Services and Retail sales in Europe exceeded the estimates.

Timing is also supportive as there are hopes that earlier stimulus in China or softening tone of the world CBs can bring some relief during 2Q19 and more reliant data.

Further improvement for risk appetite was associated with article in Financial Times ("US and China draw closer to final trade") as the US-China trade talks continue on 3-4 April and signs of progress in Brexit process as the coming EU summit on 10 April can grant the UK a long extension (9 months) decreasing the probability of a no deal Brexit. 

The greenback is also vulnerable to correction because it makes no sense how better the economic data can come as the Federal Reserve won’t change its wait and see mode in April or even until the September meeting.  On the opposite side disappointing data like the employment report (Nonfarm payrolls) on 5 April can be a significant reminder of Fed’s patience with corrective pressure on the dollar. FOMC Meeting Minutes on 10 April are also seen as bearish risk for the greenback as “Fed talk” coincided with almost all local highs on EURUSD in 2019. 

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EURUSD (daily)

Moderate downside risks probably prevail in EURUSD during 2Q19 with targets at 1.1100/30 but we see reasons for some kind of consolidation or corrective recovery in EURUSD short-term.

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