EUR/USD Is Still Worried Despite Three Reasons To Rise

EUR/USD is trading above 1.1300, balanced after recovering from the two-month lows at 1.1257. Stock markets are optimistic amid three positive drivers. The positive mood weighs on the safe-haven US Dollar.

1) Trump opening the door to deadline delay

Trade talks between the US and China intensify as US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin prepare for a top-level meeting in Beijing, with PM Liu He and also with President Xi Jinping.

It was the American President Donald Trump, back in Washington, that provided a boost to markets. He said the March deadline could be pushed back if both sides are making progress towards a deal.

Markets like the idea of pushing back the deadline and the US refraining from imposing new tariffs.

2) Government shutdown set to end

Trump made additional news by showing his reluctant willingness to sign a bipartisan deal to provide some funding to border security, an agreement that will unlock an agreement to prevent a government shutdown.

The deadline is on Friday, February 15th. He may do it “begrudgingly,” but markets do not care about the details. The previous shutdown lasted 35 days and was the longest in US history.

3) Fed hawks are dovish

While Fed Chair Jerome Powell repeated familiar messages that the economy is doing well, a more significant surprise came from two of his colleagues at the FOMC. Both Esther George of the Federal Reserve Bank of Kansas City and Loretta Mester of the Cleveland seemed content. Both are known hawks and previously supported further rate hikes.

The dovish shift from the hawks also weighs on the USD and supports stocks.

All in all, the optimistic mood is supportive, but there are forces driving the euro down.

Spain, the euro zone’s fourth-largest economy, may face fresh elections in April. The minority government led by Pedro Sánchez will probably fail to pass the budget and call new elections. He lacks the support of separatist parties from Catalonia in a sensitive timing. Their leaders are tried for their involvement in staging a referendum deemed unconstitutional in October 2017.

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