- China bond buying signals pressure the dollar, opening a potential path for EUR/USDtoward 1.20.
- ECB steady rates and delayed US jobs data keep markets cautious and range-focused.
- Fed leadership transition adds uncertainty as investors wait for policy direction cues.
At the start of the new week, the US dollar is weakening. This appears to be linked to signals from China that local banks may reduce their purchases of US government bonds, which would lower demand for the US dollar. If this policy is confirmed, the main currency pair could move back toward the 1.20 level.
Last week, the European Central Bank kept unchanged, as expected, and signaled that this stance is likely to continue in the coming months. In the US, the Bureau of Labor Statistics delayed the release of key until Wednesday, with forecasts broadly in line with recent months.
Meanwhile, markets are also watching the appointment of Kevin Warsh as the new Federal Reserve chair. Investors will be closely focused on his first public comments for clues on the future direction of .
The Financial Front in the US–China Power Struggle
Tensions between the US and China keep showing up in different areas, including trade, technology, raw materials, diplomacy, and finance. The news that Chinese banks may cut back on buying US bonds is just one part of this broader pressure on the US.
In the short term, this creates selling pressure on the US dollar, which can be seen across major currency pairs, including . Until now, China’s central bank has reduced its bond purchases at times, but private Chinese investors have largely been free to buy foreign bonds without restriction.
That could change. China’s political leadership has the ability to influence the private sector, and in its system, that kind of pressure is possible. While it is hard to know how big such a move could be, markets are taking the risk seriously. As a result, the dollar is already weakening in response.
Temporary Shutdown Delays Data Release in the US
Because of last week’s brief government shutdown, the Bureau of Labor Statistics delayed the release of key inflation and labor market data until this week. The jobs report is now due on Wednesday, followed by inflation data on Friday.
If the data comes in as expected, it would give the Federal Reserve little reason to cut interest rates by another 25 basis points in the near term. Markets currently see only a slightly better than 50% chance that the Fed will make a rate cut, and that is most likely to happen at the June meeting.
A Pause Before Further Increases in EUR/USD?
The recent move higher in EURUSD points to an upward trend from a technical perspective. In the short term, the pace has slowed, but this looks more like a pause than a reversal. If the pair breaks higher, the next clear target is the 1.20 level, which acts as key resistance.
The closest support sits at 1.1840, which marks the top of the earlier consolidation range that has already been broken.
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.