EUR/USD Downside Looks Attractive For These Three Reasons

EUR/USD remains depressed below 1.1300, unable to stage a meaningful recovery. Markets are down, suffering from a risk-off mood that also pushes EUR/USD lower.

1) No shutdown, but an ongoing clash

US President Donald Trump eventually agreed to sign the funding bill to keep the government open, endorsing the compromise that Republicans and Democrats reached.

However, he also announced that he would use emergency powers to fund the wall, placing him in a collision course with courts and aggravating the political situation.

In any case, preventing another shutdown was already priced in, so the bittersweet announcement is not supportive.

2) Trade talks are not going anywhere

US Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer met Chinese Premier Liu He in Beijing. There have been no announcements, and media outlets say that both sides remain far apart.

The senior US officials will meet with President Xi Jinping later in the day. While surprises are possible, the notion is that there has not been any progress.

3) US retail sales

American consumers cut their spending quite dramatically in December: a drop fo 1.2% in the headline and 1.7% in the all-important Control Group. While some doubt the accuracy of the report, impacted by the government shutdown and Black Friday sales, it is hard to escape the concerns.

While the data initially weighed on the US Dollar, it dampened the mood and eventually supported the dollar and the yen.

The thinking is: if the US consumer is not doing that great, other areas are probably undergoing a more severe downturn.

The European calendar is quite light, but the American one features industrial output and more importantly, the University of Michigan’s preliminary Consumer Confidence measure for February. It will provide further insights into the state of the consumer.

In the old continent, Spanish PM Pedro Sánchez is set to announce a date for an early election shortly. The minority government in the euro zone’s fourth-largest economy failed to pass the budget earlier this week.

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