EUR/USD. Not a trace of optimism remains: Trump is still in thought

Yesterday, there was no trace of optimism from EUR/USD traders. Rumors that Trump will postpone the imposition of duties on the import of European cars have not gained any real form, despite the widespread announcement of this decision. According to US Secretary of Commerce Wilbur Ross, the president is still thinking about this, and the final decision will be made on Saturday, May 18. At the same time, he clarified that at the moment all options for the development of further events are being considered - including the option of introducing fees. Given this ambiguous rhetoric, EUR/USD traders have to go through an alarming weekend, as the odious Trump can present a very unpleasant surprise. Although the likelihood of a new trade war is relatively small, it cannot be ruled out. In such conditions, it was difficult for the European currency to count on correctional growth, so today the price has returned to the area of the 11th figure again.

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However, Trump is not the only problem of the single currency. The euro is under pressure and other fundamental factors. In particular, today it became known that the eurozone trade surplus (seasonally adjusted) fell to 17.9 billion euros, whereas in the previous reporting period, in February, this figure was 20.6 billion euros. The surplus was also lower than the forecast values (which amounted to 19.4 billion euros). Disappointed with the weak growth of exports - the figure increased by only 0.9%, while imports grew by 2.5%. On the one hand, these figures are belated (let me remind you that we learned the March figures today) - but on the other hand, they again reminded traders of the precariousness of economic growth in Europe.

Italian politicians are also distressing traders of the pair. Let me remind you that this week Italy, represented by Deputy Prime Minister Salvini, stated that it was ready to break the EU budget rules in order to reduce unemployment. According to him, the Italian Cabinet of Ministers intends to reduce the unemployment rate from 10% to 5%, even if it will be necessary to increase the budget deficit (exceeding the 3% debt-to-GDP ratio ceiling) and temporarily increase the national debt. Although half a year ago, the Italians managed to literally avoid a disciplinary action by Brussels (in the form of a fine of 0.2% of GDP), they are now aggressively returning to populist and anti-European rhetoric.

Of course, this behavior can be explained by the election campaign in the European Parliament. Nevertheless, Italian politicians, regardless of the elections, will have to make difficult decisions, fulfilling EU requirements. In particular, we are talking about value added tax. Even the predecessors of the current government wanted to raise the VAT, but they managed to shift this "mission" to the current composition of the cabinet of ministers. The leaders of the League and 5 stars, even before the Parliamentary elections, promised not to let the sales tax increase - and now they don't change the tone of their rhetoric. In turn, the Minister of Economy and Finance Giovanni Tria has already warned that in order to cancel the increase in VAT, the authorities need to additionally find 23 billion euros per year. In other words, when discussing the budget for the next year, this issue will be an edge: either the sales tax increases, or Rome reduces expenses. All other options are fraught with disciplinary action by the European Union.

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Against the background of mutual accusations, relations between Rome and Brussels deteriorate again, and this fact does not bypass the markets. Traders get rid of Italian government bonds, buying German bonds instead, which look more reliable (especially against the background of rising inflation and GDP in Germany). All this led to the fact that the spread between the yields of government bonds reached three-month highs, thereby putting pressure on the single currency.

Thus, the prevailing fundamental picture allows EUR/USD bears to test the support level of 1.1130 again (the bottom line of the Bollinger Bands indicator on the daily chart). If we talk about the prospects of declining to the 10th figure, then a more heavy reason is needed - for example, if Trump still decides to open a "second front" of the trade war. If the US president postpones this issue until the end of this year (and announces his decision until the end of the trading week), then a strong corrective pullback to the mid-12th figure is likely.

Furthermore, traders of the pair should pay attention to tomorrow's inflation rate in the eurozone (final data for April will be published). The preliminary estimate turned out to be much better than expected - the general consumer price index jumped to 1.7%, while core inflation rose to 1.2%. According to the overwhelming majority of experts, these figures will not be revised downward. This fact may provide additional support for the euro. However, the hypothetical correctional growth also has its price ceiling - in this case, it stands at 1.1270 - this is the lower boundary of the Kumo cloud, which coincides with the upper line of the Bollinger Bands indicator on the daily chart.

The material has been provided by InstaForex Company - www.instaforex.com