EUR/USD extends losses as US-China trade war concerns dissipate

• The Euro extends losses below 1.1630 as the US Dollar firms up amid easing trade fears.
• Trump affirmed that he is expecting to sign a "fair deal" with Xi Jinping next week.
• The White House's economic advisor boosted sentiment further, anticipating the end of the US shutdown.

EUR/USD moves lower for the third consecutive day on Tuesday, trading near the 1.1625 area at the time of writing, after having peaked at 1.1728 on Friday. Hopes that the meeting between US President Donald Trump and Chinese Premier Xi Jinping will de-escalate the trade standoff between the world's two largest economies are buoying the US Dollar (USD) across the board.

Trump soothed investors on Monday with a conciliatory tone towards China. The US President announced that he will meet Xi Jinping in South Korea next week to "discuss multiple issues," but he said that he expects to reach a fair trade deal with Beijing and that the US will have a very good relationship with the Asian country.

Furthermore, the White House economic advisor, Kevin Hassett, also affirmed on Monday that the US federal government shutdown is likely to end "sometime this week". That would provide the necessary data for the Federal Reserve's (Fed) monetary policy committee, which meets next week and is highly likely to cut interest rates by 25 basis points.

The economic calendar is void on Tuesday, apart from a speech by European Central Bank (ECB) President Christine Lagarde. Lagarde spoke several times last week, and she is unlikely to say anything new regarding the bank's monetary policy plans.

Daily digest market movers: The US Dollar appreciates as trade fears wane

• The latest episode of the trade rift between the US and China is ebbing. Trump and Xi meet next week to find a deal that guarantees a further extension of the trade truce beyond the November 1 deadline and avert Trump's threat of 100% tariffs on Chinese exports that would disrupt global trade. The US Dollar has reacted positively to the news.
• Market volatility, however, remains subdued amid the lack of macroeconomic data. Investors are bidding their time this week, awaiting key developments next week, namely the outcome of the Federal Reserve's monetary policy meeting and the meeting between Trump and Xi in South Korea.
• In the Eurozone, the victory of French Prime Minister Sebastién Lecornu in last week's no-confidence votes provided some support to the Euro. Investors, however, are aware of the fragility of the government and the serious challenge of having to pass a tightening budget through a deeply divided parliament. This is likely to keep Euro strength limited.
• Macroeconomic data released by Destatis on Monday revealed that the German Producer Price Index (PPI) edged 0.1% down in September, against market expectations of a 0.1% increase. These figures follow declines of 0.5% and 0.1% in August and July, respectively. Year-on-year, the PPI fell 1.7%, following a 2.2% contraction in August.

Technical Analysis: EUR/USD returned within the channel, aiming for 1.1600

EUR/USD broke below the reverse trendline at the 1.1640 area, returning to the broken bearish channel, after the rejection at 1.1730 last week, and increasing pressure towards the 1.1600 area. On the 4-hour chart, the Relative Strength Index (RSI) has breached the 50 level, and the Moving Average Convergence Divergence is heading south below the signal line, highlighting the negative momentum.

The immediate bearish target is the October 15 low, near 1.1600. Further down, the October 9 and 14 lows in the area of 1.1545 would come into focus ahead of the channel bottom, now around 1.1470. On the upside, Monday´s highs are at 1.1675, well below Friday's high, near 1.1730. The pair would need to break those levels to ease bearish pressure and shift the focus to the October 1 high, around 1.1775.