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EURUSD: euro pushing for retracement to August 6 high

The euro closed 0.25% higher at 1.1870 on Monday, August 17. Yesterday, gold prices and 10-year US bond yields acted as the key drivers behind euro strength and USD weakness. In Asian trading, the euro moved higher on the back of rallying equity benchmarks. The Shanghai index surged 2.4% after China’s central bank boosted the scope of medium-term lending to jump-start the country’s financial market.

Gold could draw support from media reports that that renowned billionaire Warren Buffett took an equity stake in the world’s second-biggest gold miner Barrick Gold during the second quarter. In the upshot, the 10-year US bond yield plunged to 0.6655%.

Todays macro agenda (GMT 3)  

15:30 US: housing starts and building permits (July)

Current outlook

Yesterday’s our expectations failed to materialize. The EURUSD pair fell to 1.1829, but did not reach the target level of 1.1814 (45th Gann level). Buyers quickly won back losses and went on the offensive when all euro crosses entered positive territory. However, the gains stalled at 1.1881.

In Asian trading, buyers pushed the pair to a high of 1.1906. Volumes could thin out ahead of the release of minutes from the Fed’s last monetary policy meeting.

Traders are also keeping close tabs on the latest news out of Germany, where 1,693 new Covid-19 cases were recorded over the past 24 hours. In addition to the upsurge in infections, six more fatalities were recorded, bringing the death toll to 9,296. Meanwhile, the number of current active cases to date exceeds 14,000, the highest mark since May 16. As of yesterday, the Robert Koch Institute (RKI) estimated the 4-day R-value at 1.11, while the burden on the health system was classified as “low”.

The market is currently brushing aside the pandemic in Europe as well as the tense relationship between the US and China. US President Donald Trump is mulling a ban on other Chinese companies following a decision that could ban the TikTok social media app. Restrictions may also apply to Alibaba.

Given that exogenous factors altered the euro’s trajectory yesterday, and the price deviated from our baseline scenario, we will be observing the market from the outside. As of today, no options are yet visible. The single currency is appreciating amid overall dollar weakness and a rally in gold prices.

In light of the above factors, the pair may drop to 1.1860 by the opening of the North American trading session amid a decline in major crosses (EURGBP and EURJPY).

Resistance is at 1.1920. If the price drops, losses will be pared and EURUSD will likely retest the August 6 top. Support is at 1.1860, so traders are advised to make decisions once the price converges with the trendline.

EURUSD: euro pushing for retracement to August 6 high

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