EUR/USD was briefly boosted in the early week as trade tensions between the world's two largest economies weighed on the dollar. However, the rally was not sustained, as the pair quickly reversed to give back gains. Tensions eased on Thursday after a White House official commented that trade disputes with China will be worked out over time, sending the dollar higher and triggering a renewed appetite for risk.
Gold prices have declined toward lows not seen since late March, and safe haven currencies dropped in value against the greenback to notable lows. USD/JPY was last seen crossing over the 107 handle to trade at a five-week high, while USD/CHF extended gains to levels not seen since Jan. 23. Equity traders, encouraged by the White House comments, lifted the S&P 500 higher after it spent the past few sessions battling the 200-period daily moving average.
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The renewed demand for the dollar on Thursday has led to an attempt to break below an important technical area in EUR/USD. The pair has already crossed below the March 20 low and is seen attempting to break below a rising trendline that originates from a low posted in November. The break of the March 20 low invalidates a signal that bulls were seeing last week when the pair broke to fresh monthly highs, creating a succession of higher lows and higher highs in the cycle that started at the beginning of March. A sustained break below the rising trendline, however, could have larger bearish implications for the pair, especially as it has been struggling to make gains this year.
A major technical hurdle for EUR/USD as of late has been near the 1.2500 handle, as a confluence of resistance has encouraged sellers to step in. The area contains resistance that is seen on a monthly chart that includes the 100- and 200-period moving averages and a 38.2% Fibonacci retracement measured from the 2008 high to last year's low, as well as a declining trendline that originates from the 2008 high.
The greenback, which has largely shrugged off negative headlines pertaining to trade tensions as of late, in contrast to the persistent bearish pressure seen in the global equity markets, has advanced against all of its major counterparts in European trading on Thursday in the view of easing trade tensions.
Similar to EUR/USD, the U.S. dollar index (DXY) is threatening a critical horizontal level. The index is attempting a break above 90.40, a level that has held it lower throughout the mostly sideways price action that has taken place over the past 10 weeks. A daily close above 90.40 in DXY, or below the rising trendline in EUR/USD, signals a potential reversal from the earlier trend, although traders may be cautious positioning ahead of Friday's NFP jobs report, in which analysts are expecting the unemployment rate to decline even further from its 17-year low of 4.1%.
On Wednesday, the ADP reported an additional 241,000 people employed in March, which exceeded the expectation for an increase of 208,000, setting strong expectations for Friday's government report.
In the week thus far, the euro is the worst performer among the major currencies, down about half a percent against the greenback. The loonie leads the majors, despite oil prices trading about 2% lower from Friday's close.
In the event of a sustained bearish break in EUR/USD below the rising trendline, the next area of support is found at 1.2182, marking support from the range that has been playing out for the bulk of the year thus far. It should be noted that the equivalent level in DXY is 90.40, which is currently being threatened. The next area of support at 1.2090 marks the 161.8% Fibonacci extension of the rally from March 20. The level also confluences with horizontal support from the high posted in early January. Near-term resistance is found at 1.2283, a level that has acted as both support and resistance since it first came into play in mid-January.