Further downside on the cards for EUR/USD?

On Wednesday, in addition to the usual market drivers, such as the uncertainty surrounding the US-China trade negotiations and the reduction of risk appetite, we had other interesting developments. As a result, the euro lagged.

For the first time since 2004 in a quiet move China sold euro-denominated bonds, that is highly significant and telling. The sale was only for 4 billion dollars of 7-, 12- and 20-year bonds but there was extremely high demand, around 20 billion euros worth. With that, the bonds priced about 20 basis points below China's initial target, according to a report.

Why this event is so important? For few reasons. The big one is that the euro is increasingly the preferred funding currency. It also signals the increasing cooperation between China and Europe. Finally, it signals China's efforts to diversify its FX and economic exposure away from the US.

With this demand and the near-certainty that eurozone rates will remain pinned to the floor, expect more countries and corporates to issue euro-denominated debt and promptly invest it elsewhere. That should keep the downside pressure on the euro, but could also give it further positive potential during risk-off phases.

In additional, take in mind that intraday strength in the US dollar index is a key factor behind weakness in the EUR/USD.

From technical analysis point of view, a clear break below 1.1062 support suggests completion of the corrective rebound from 1.0879. On the daily chart we have seen also clear break under the short-term support trendline. Now, intraday bias in EUR/USD is turned back to the downside for retesting 1.0879 bottom next.

But if the common currency manages to protect the abovementioned support, the technical picture would change. On the upside, a sustainable move above 1.1093 minor resistance will turn intraday bias neutral first. Further break of 1.1179 (October 21st high) will resume the rise to 1.1412 key resistance next.

Ultimately, I am a seller of this pair until we break out above the 200 day EMA on a daily close at the very least. Look for signs of exhaustion after short-term rallies, and then take advantage of any opportunities you get to pick up US dollars “on the cheap” going forward.