EUR/USD playing havoc on trading desks, tug-of war to the extreems between bulls and bears

• EUR/USD testing bears wits at 1.1580, bulls target 1.1632 daily Tenkan on upside break.
• EUR/USD bulls need to be aware of what's evolving in EM-FX, bears target break of 1.1530. 

EUR/USD has recovered back to the 21-hr SMA after reaching the key 1.1530 support area while the DXY drops from the key 95.70 resistance, although remains on top despite profit taking in cable and the euro. Currently, EUR/USD is trading at 1.1577, with an hourly recovery high in at 1.1584, (troubling the bears) and from a low of 1.1530. 

EUR/USD dumped on trade war fears as full markets came back in today following the Labour-day holidays. EUR/USD has been in a strong bearish trend but it has been supported and bouncing back with big bulls stepping in at critical levels. Firstly, 1.1580 was protected with a drive back to 1.1628. Then today, 1.1556 was stalling the sell-off as being just below the 1.1569 Fibonacci level, a 38.2 percent retrace of the 1.1301 to 1.1734 August rise. 

The US dollar is performing better than the CHF and yen on safe-haven flows as investor's concern mount over rade wars and NAFTA. Meanwhile, US data was also supportive of the greenback:

US data seals the deal for bears

EUR/USD made a pre-US data low of 1.1544 and then it dropped to 1.1530 when the US ISM Manufacturing PMI for August arrived with a big beat at 61.3 vs 57.7 expected - reinforcing the case for two more rate hikes from the Federal Reserve this year. "This is significantly better than the market consensus of 57.6 and suggests that while companies may be concerned about Trump’s protectionist policies, the underlying strength of demand remains fantastically robust...The ISM is at levels historically consistent with GDP growth of around 8%."

EUR/USD bulls need to be aware of what's evolving in EM-FX

From here, focus needs to be on EMs as well. While Turkey and Argentina may survive a full-on rally in the dollar, (watch 95.70 resistance, top of H&S shoulder), as they have relatively large FX reserves, (Turkey 88B USD) contagion is spreading - look at the Brazilian real and USD/ZAR today. Trump's trade war on China is not helping in the mix and this should keep the euro bulls at bay and support the greenback fundamentally. 

EUR/USD levels

The pair is at a key juncture here. Bulls can target a break back to the 1.1632 Daily Tenkan and then the 1.1661 cloud base. Failures at 1.1580 and a break back below the  1.1565 38.2% Fibo 1.1301-1.1734 and then the 21-D SMA at 1.1540 opens the case for a full on break down below the 1.15 handle should 1.1530 critical support gives. Bears will look for a close below 1.1480. However, the bulls can find some solace in the longer wick where the sellers are running out of momentum, although daily RSI is troublesome as it advances lower.