EUR/USD extends losses, US Dollar appreciates following the EU-US trade deal

• The Euro accelerates its decline on Monday as investors analyze the details of the EU-US trade deal.
• Eurozone products face a 15% tariff in exchange for strong EU investment and large purchases of energy and military equipment from the US.
• The US Dollar maintains a moderate positive tone as US data backs the Fed's hawkish stance.

It was buy the rumour, sell the fact for the EUR/USD pair, which opened the week in the same defensive mode that closed the previous one. News that the European Union (EU) finally signed a trade agreement with the United States (US) has failed to provide any significant support to the Euro (EUR), while the US Dollar (USD) extends its recovery against a basket of major currencies.

The common currency appreciated moderately at the market opening, but bulls were capped at 1.1770 before pulling back below 1.1750 and approaching the 1.1740 area in the early European session on Monday. The broader trend remains positive, from mid-July lows at 1.1555, but the pair is showing a waning bullish momentum.

The European Commission President Ursula von der Leyen signed a pact with the US President Donald Trump, which will reduce tariffs on European products to 15%, half of the 30% rate announced by Trump earlier in July. In exchange, the Eurozone has committed to invest EUR 600 billion in the US and ramp up purchases of Gas and military equipment.

The deal has been unable to alter the recent balance of power between the Euro and the US Dollar, with the latest supported by relatively upbeat US data, which backs the Federal Reserve's (Fed) "wait and see" stance and practically discards any interest rate change after this week's monetary policy decision.

The economic calendar is thin today, with only the Dallas Fed Manufacturing Business Index providing some fundamental guidance during the US session. Investors are likely to remain calm ahead of a busier second half of the week, with Wednesday's Federal Reserve decision and Friday's Nonfarm Payrolls (NFP) report for July attracting the focus.

Daily digest market movers: The EU-US trade deal fails to convince markets

• According to EC President von der Leyen, it was "the best deal we could get", yet probably not the best deal investors were hoping for. The European Union will face 15% levies, which is not 30%, but neither the original zero-for-zero deal aimed at by Brussels. The 15% tariffs extend to pharmaceutical products and automobiles, the Eurozone's main exports to the US. In exchange, Europe will have to invest EUR 600 billion in the US and buy EUR 750 billion of its Gas. The Euro reacted negatively as markets analysed the small letter in the pact.
• The US Dollar maintains a moderately bid tone from last week. Data released on Friday revealed that US Durable Goods Orders contracted by 9.3%, their worst performance in years, but still better than the 10.8% drop forecasted by market analysts. Beyond that, excluding transportation, the so-called "core Durable Goods" increased at a 0.2% rate, beyond the 0.1% expected.
• These figures come after an unexpected decline in the weekly US Initial Jobless Claims released on the previous day. Claims for unemployment benefits fell for the sixth consecutive week, reaching their lowest levels in the last three months, highlighting the resilience of the labour market and providing further leeway for the Federal Reserve to keep interest rates higher for longer.
• The Fed's Monetary Policy Committee meets on Tuesday and Wednesday, and is widely expected to leave its benchmark Funds Rate unchanged at the current 4.25%-4.50% range. The main attraction of the event will be Fed Chairman Jerome Powell's press release to see whether the latest trade deals and potential rebound in US GDP, which will be released earlier on the same day, can alter the bank's cautious stance on further rate cuts.

EUR/USD is under growing bearish pressure, approaching 1.1700

EUR/USD is showing a growing bearish momentum. The pair was rejected at 1.1770 during Monday's Asian session and has depreciated about 0.3% since, forming a potential Head & Shoulders (H&S) pattern, a figure that often anticipates trend shifts, whose neckline is at the 1.1700-1.1710 area.

Technical indicators are pointing lower. The 4-hour Relative Strength Index (RSI) is dipping into negative territory below 50, and the MACD in the same timeframe reflects a waning bullish momentum.

The mentioned 1.1700-1.1710 area (July 25, 23 lows respectively) is the bottom of last week's trading range. Below here, the H&S pattern would be activated. The next support levels would be the July 22 low at 1.1680. The H&S´s measured target would be the July 18 and 21 lows, at 1.1617.

On the upside, the intraday high at 1.1770 and the July 24 high at 1.1790 are likely to challenge bulls ahead of the multi-year high at 1.1830.

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