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- EURUSD retreats further from key moving-average and previous highs.

- Series of levels must be overcome to spark recovery says Commerzbank.

- As fundamental analysts eye trip down to 1.10 level before end of June.

The Euro was lower in a risk averse market Wednesday and could remain on its back foot for a while yet, according to analysts at Commerzbank, who say regaining the upside initiative is a "tall order" for the single currency at present.

Europe's single currency, alongside almost everything else in the G10 universe, ceded ground to a resurgent Dollar during a Wednesday session that has seen it retreat even further from a series of key technical levels that must first be overcome in order for the Euro-to-Dollar rate to advance meaningfully.

"EUR/USD’s bounce off the 1.1105 recent low continues and will shortly encounter the 55 day moving average at 1.1231," says Karen Jones, head of technical analysis at Commerzbank, in a morning note. "We need to overcome the 55 day moving average, last weeks high at 1.1264 and the 2018-2019 downtrend at 1.1302 in order to alleviate downside pressure and reassert upside interest. This is a tall order at present and is likely to take several attempts."

Above: Commerzbank technical analysis of Euro-to-Dollar rate.

The Dollar was in demand Wednesday amid renewed concerns over the outlook for the global economy. Stock markets sold off with other 'risk assets' while safe-haven bonds and currencies like the greenback and Japanese Yen were bought after President Xi Jingping was reported to be weighing a retaliation against the U.S. for its 'blacklisting' of Chinese telecoms and technology titan Huawei.

Huawei was added to the Commerce Departments 'Entity List' this month, which means American companies will need permission from the government before carrying out transactions with Huawei or any of its affiliates. This makes buying and selling its products in America near impossible.

Hui Xijin, Editor-in-Chief of China's Communist-Party-sponsored Global Times, said in a social media post Wednesday that China is considering preventing the export of rate earth metals to the U.S.

China controls much of the world's marketable supply of rare earth metals, which are an important component of the batteries used in some electronic goods including smart phones.

"In our view EUR/USD is likely to edge towards the 1.10 area on a 3 month view with the USD likely benefitting from safe haven flows on signs of slower world growth," says Jane Foley, a strategist at Rabobank.

Above: Euro-to-Dollar rate shown at daily intervals, alongside Dollar index (orange).

The U.S. and China have been engaged in a tariff fight for more than a year now, which began due to U.S. concerns about China's "unfair trading practices". But the move from tariffs to blacklists means the so-called trade war could now be on the verge of morphing into an all-out economic conflict.

This is happening at a time when the global economy is decelerating and when central banks in many parts of the developed world have only limited scope to assist their economies in the event of a downturn.

The European Central Bank (ECB) deposit rate has been at -0.4% and its main interest rate 0% for a number of years already. It would be difficult and potentially counterproductive for the ECB to cut rates below those levels.

However, if the conflict between the U.S. and China escalates further and leads to a more severe slowdown, some form of central bank support could well be required not only for the Eurozone economy but for others too.

"U.S. crackdown on Chinese companies including Huawei is no longer like a trade war", Xijin writes, in another Wednesday social media post. "The US is shifting from protecting its interests to destroying China. It increasingly resembles air striking Chinese high-tech companies. China is mulling qualitative change in countermeasures."

Above: Euro-to-Dollar rate shown at weekly intervals.

Fears over the outlook for the global economy come hard on the heels of the European parliament elections and at a time when the political landscape in Europe is becoming more fragmented and politics more polarised.

Establishment parties, often referred to as those on the so-called centre ground, received a drubbing in the European polls last week with electoral support migrating to parties that are clearly on the left of the spectrum and the anti-estblishment groups to the right.

"The euro weathered the European election but the upside for EUR/USD remains limited. We continue to look for EUR/USD 1.10 in June with the current benign USD environment being a negative for the cross," says Petr Krpata, a strategist at ING Group.

The European parliament has no control over the European agenda and very little influence over the affairs of the European Union but it is still required to place a rubber stamp on legislation that makes its way from the European Council of national leaders and the managerial European Commission.

For the timebeing at least, the 'old guard' parties of Europe are still able to muster a small majority in the parliament but the message coming from the latest polls was clear and the trend unmistakeable. This means political risk will remain a factor for the Euro, especially when the next round of national elections appear on the horizon.

2019 had begun with the market looking for the Euro-to-Dollar rate to assail levels north of 1.20 before the year is out but now, many analysts are looking for the single currency to strike a new low of around 1.10 before the end of June, before embarking on a shallow upward climb from there.

Anything more than a shallow recovery would require a clear pickup in Eurozone economic growth, which might still happen, although financial markets won't know it for sure until late August when second quarter GDP become available.

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