EUR / USD: only the end of trade wars will lead to the strengthening of the euro


Against the background of increasing fears that the trade conflict between Washington and Beijing is serious and for a long time, investors are actively selling off the currencies of developing countries and increasing the share of protective assets in their portfolios. This pushes the USD index up and the EM currency down.

Contrary to the prevailing view on the market that the worst in a trade war is still to come, Brandywine Global Investment Management experts believe that US President Donald Trump will be forced to soften the rhetoric and conclude a trade deal with China to protect the interests of American consumers.

"Trump has an incentive to make a deal. In essence, the duties are US consumer tax, "said Brandywine representatives.

According to them, the current position of the American leader may be part of a strategy aimed at gaining the support of conservative voters before the presidential election.

Brandywine also believes that the USD rally is ending near.

"All the traditional supports for the advanced dynamics of the greenback seems to be crumbling or have already collapsed. In such conditions, it makes sense to pay attention to the assets most affected by trade friction, including the Australian dollar, " the experts noted.

It is assumed that due to the movement of investors from funding currencies to risky assets in the framework of resuscitation of the carry-trade strategy, the bulls of EUR/USD may also suffer.

At the same time, it should be recognized that only the end of trade wars will lead to the strengthening of the euro. Without the recovery of German exports and European industrial production, bulls at EUR/USD will be difficult to break through to the level of 1.15.

Meanwhile, the problems of the euro go far beyond the trade conflicts and EU's weak economy.

As soon as the Old World withdrew from the elections to the European Parliament, fears of a potential escalation of the conflict between Rome and Brussels returned.

According to Reuters, in early June, the European Commission may begin to consider disciplinary measures against Italy, which violates EU budget rules.

In addition, despite the fact that the US president has decided to postpone the increase in duties on the import of cars to America from the Old World for the time being, he can still block oxygen to EU car suppliers.

In such conditions, the growth potential of the EUR/USD pair seems limited. In this regard, the purchase will be interesting only at the breakthroughs of the resistance levels of 1.1265 and 1.132.

The material has been provided by InstaForex Company -