Michael Kopanakis  is head of brokerage at SquaredDirect
Michael Kopanakis is head of brokerage at SquaredDirect

The Euro climbed to 1.1412 but Eurozone uncertainty dampens growth

Moving into the start of Q3 of the current financial year, the low point - as we can see in our previous analysis back in the start of May 2019 - according to our estimations has been reached (1.11) and the pair has since changed its trend and seems to be rather bullish as the Euro managed to break above significant resistance and psychological levels after two consecutive upward rallies, currently trading around the 1.1330 level, having first reached 1.1412.

First Published: e-Forex Magazine 87 / Currency Clips / July 2019

The Euro climbed to 1.1412 but Eurozone uncertainty dampens growth

Moving into the start of Q3 of the current financial year, the low point - as we can see in our previous analysis back in the start of May 2019 - according to our estimations has been reached (1.11) and the pair has since changed its trend and seems to be rather bullish as the Euro managed to break above significant resistance and psychological levels after two consecutive upward rallies, currently trading around the 1.1330 level, having first reached 1.1412.

The G-20 summit kicked off on Friday 27th of June in Osaka Japan, President Trump had a meeting on Saturday the 28th with the Chinese president where the two leaders have agreed to pause the tariff war they were engaged in.  Regarding tariffs on Chinese goods that may affect $300billion of Chinese goods, they will not be added now. Although the worst-case scenario has been averted, this may have some economical knock on effects, causing possible short-term strength for the greenback. Through this stance, Trump may be trying to focus more on the future presidential election and less on trade.

Has the FED finally seen enough to cut the interest rate in the USA? Possibly, although it will be announced on the 31st of July. If this is the case and a 50-basis point cut could see the rate of the EUR/USD become very volatile.

Moving to the UK, Theresa May’s three years as Prime Minister are coming to a halt on the 22nd of July 2019. The choice of person set to succeed her leadership rests between Boris Johnson and Jeremy Hunt, the two last standing Conservatory candidates. The winner will be announced on Tuesday the 23rd of July. As it stands Boris Johnson, a Brexiteer who voted to leave the EU, is likely to become Prime Minister and has recently stated that he will not rule out leaving the Eurozone without a deal.  

The official leave date regarding BREXIT is still booked for the 31st October 2019 but this date may be extended. Although the uncertainty regarding the conditions with which the UK will leave the Eurozone, or if they shall leave at all, can spark potential news volatility at any moment for the Euro.

Taking a closer look at the EUR/USD pair, we can see that so far according to our estimations we didn’t face any unexpected movement. It first reached the 1.11 level and then recovered up to 1.1412, now EUR is trading around 1.1330 and we wouldn’t be surprised if we see the price climbing up to 1.1570 from a technical point of view, as bulls managed to gain the momentum after few months and led the price at higher levels breaking significant resistance levels.

On the other hand, we should wait for investors’ reactions after the positive outcome at the G20 summit regarding the trade war between USA and China, because this gives a leverage to the greenback and to the uncertainty in the Eurozone at all levels, along with the Euro-zone weakness, first indication of which was Spain’s PMI that dropped to 47.9. More data are to be realized for France, Germany and Italy soon. After the G20 meeting there has been some signs of the EUR/USD pair taking a bearish stance, least for the time being. Since my previous article, the pair has tested the 1.11 level multiple times before rebounding, which makes this area a very strong and valid support level. Bullish thinking 1.1570 is the next target which will open the way for 1.18. Taking the new data after G20 and PMI releases into consideration, it will not surprise me to see a pull-back to lower levels, always depending on the upcoming figures.