EUR/USD Looks Vulnerable After Failing To Rise On Good News

EUR/USD is trading in the mid-1.1300s, down from the highs near 1.1400. The trading week kicked off on a higher note for two reasons:

1) Trump calling for a weaker dollar: President Donald Trump gave a wide-ranging speech in Maryland over the weekend and bashed the Federal Reserve for raising interest rates and continuing with its monetary tightening policy. He also said that the “gentleman at the Fed” wants a stronger dollar.

2) Optimism on trade talks: The Wall Street Journal reported that further progress has been made in US-Sino trade talks. The Administration has reportedly agreed to remove the tariffs it recently imposed on China. The Middle Kingdom also revealed a new foreign investment law that would strengthen IP protection, a key US demand. The risk-on mood weighed on the safe-haven USD.

Both developments sent the US Dollar lower, with a weekend gap. EUR/USD kicked off at around 1.1380 but was unable to hold onto the gains. The greenback closed the gap also against other currencies.

It seems that markets got used to Trump’s trashing of the Fed, which was more intense in late 2018. And regarding trade talks, hopeful comments have been heard before, most recently from Larry Kudlow, the Director of the National Economic Council at the White House. A more significant development would be setting a meeting between Trump and Xi Jinping, his Chinese counterpart.

When a currency pair cannot rally on good news, it exposes its weakness and the downside becomes more appealing. 

We have witnessed the same reaction on Friday. The US ISM Manufacturing PMI dropped to 54.2 points, well below expectations and the lowest in almost three years. The pair initially rose before falling back down.

Apart from US Dollar demand, dim prospects of growth in Europe do not help either. Later today, the Sentix Investor Confidence gauge will shed more light on current business conditions. It is projected to remain in negative territory. The European Central Bank is watching the data closely ahead of its all-important meeting on Thursday.

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