New round of trade wars won’t support the EUR/USD bulls.
Would financial markets be bored without Donald Trump? If you imagine Forex without his catchy tweets and displays, it would perhaps be. If you have a look at the EUR/USD, being stuck in the range of 1.125-1.15 since the middle of autumn, then it wouldn’t. The euro area has touched the bottom, the euro is about to recover the uptrend, which, amid a slowdown in the US GDP growth in the first quarter, suggests a bullish outlook for the euro to the US dollar. And then, the U.S. president inserts himself into the affair. He warns the EU of “severe” economic if Brussels doesn’t take part in the trade talks. The euro buyers wouldn’t like to face another round of trade wars.
The negotiations between the U.S. and the European Union about tariffs reduction started when Barack Obama was the president, however, the change of power in the White House allowed Brussels to get off the hook. Judging by Donald Trump personal disposition, I can surely say that it won’t be for long. The matter is that, unlike the prior U.S. administration, the present one requires the euro area to include into the negotiation issues European farming industry that is of key importance for the EU. The situation is being fueled by the decision of the European Parliament, having voted against moving ahead with the negotiations with Washington.
Based on how much the euro suffered from the US-China trade war, it follows that the battle transfer from Asia to Europe should put a further pressure on the EUR/USD bulls. They are just getting around after after the hard second half of 2018 and the ECB willingness to boost the monetary stimulus. Markets indicate that the euro area has touched the bottom. European stock indexes, despite the weak economic data, are outperforming their global peers. Italy is about to exit the recession, France is gaining back its confidence, and the economic boom in Spain is going on. Skeptics may say that the STOXX 600 surge has resulted form Mario Draghi’s dovish rhetoric. However, let’s avoid the illusions, European market had started rising before the press conference, following the ECB meeting in March.
Dynamics of stock indexes
Source: Bloomberg.
Donald Trump’s threats against the EU spoil the whole game. I can’t yet recommend buying the EUR/USD, it is still trading in the range of 1.125-1.15, and it still may break through its bottom. Donald Trump’s behaviour seems to be paradox. It is funny that the fan of the weak dollar doesn’t let the USD to slide down from the high.
But, in theory, a decline in the US growth and a break in the Fed’s monetary normalization should press the greenback down. According to the median forecast of 66 experts, surveyed by Wall Street Journal, The US annual GDP growth will slow down to 1.3%, which corresponds to 0.4% Q-o-Q. It is about the worst quarterly indicator since late 2015. In addition, the experts expect a later date of a possible rate hike. Currently, the majority of them (57%) expects it in September or later.