The euro-dollar pair continues to demonstrate a wave-like movement within a given price band of 1.1170-1.1240. Today, bears of the pair made another attempt to put pressure amid the general growth of anti-risk sentiment in the market and loud statements by Italian politicians who rebelled against budgetary restrictions from the European Union. But during a period of the US session, the pair sharply turned by 180 degrees and even managed to update its high of the day, reaching 1.1225. Although a further increase in prices remains a big question, the downward blitzkrieg also ended in failure - at least within the framework of today.
EUR/USD bears were let down by US president Donald Trump. To be precise, the pair turned on the rumors that Trump would postpone the introduction of 25 percent customs duties on imports of European cars. In February, he announced that he would take a decision until May 18, after which he periodically "reminded" his European colleagues about such intentions. Let me remind you that in July last year, following the results of the meeting between Donald Trump and Jean-Claude Juncker, the parties agreed not to introduce additional trade duties and barriers. Instead, Washington and Brussels set up a working group on trade relations, whose members have been engaged in sluggish negotiations on import duties on steel and aluminum all this time.
However, since then no additional agreements or decisions have been taken: Juncker was able to "put out the fire" then, and, by and large, only managed to delay the problem. According to rumors, the head of the EC called for Trump to create a customs agreement - between the United States and the EU, as well as with third countries exporting cars. According to the overwhelming majority of experts, this idea was initially doomed to failure, given the position of Trump under the conditional name "America first."
Therefore, it should be recognized that the problem of trade relations between the US and the EU has not disappeared at all, and in the coming days such a reminder will surface. The European Union (primarily Germany) is the largest exporter of cars in the world, while the United States are the largest buyers. According to some estimates, the cost of European cars delivered to the US is almost ten times higher than the supply of steel and aluminum, for which duties were introduced last year. Therefore, Trump's possible decision will be a painful blow to the European economy, which has just begun to show signs of recovery. In particular, according to analysts polled, the automotive sector in Germany alone could collapse by 12% literally in the first days after the introduction of 25 percent duties. This dynamic will pull down the German stock market, bonds, in turn, will affect investor sentiment in general, and the notorious "domino effect" will follow.
In addition, Trump's actions in relation to the EU will entail retaliatory steps. For example, last year the European Union was preparing new duties on American goods worth a total of $20 billion for such a case. At the same time, the German foreign minister said that Europe would not allow discussions with the language of ultimatums, and the EU is ready to respond with symmetrical economic measures. I believe that today, in the conditions of the election campaign in the European Parliament, the rhetoric of German politicians is unlikely to soften.
Thus, if the US president still opens the "second front" of the trade war, anti-risk sentiment in the foreign exchange market will increase again, providing support to the dollar. But according to American journalists, Trump is not sure that amid escalating tensions between the US and China, he should complicate relations with the European Union. According to journalists, many reputable economists, "go" in Trump's social circle, dissuade him from such a step, as do some of his advisers (among them, US Trade Representative Robert Lighthizer). If the US president listens to them and the White House officially postpones the resolution of this issue for half a year, then the EUR/USD pair will receive a reason for further corrective growth.
However, even in this case it will be impossible to talk about the resumption of an upward trend: the bears will only lose a powerful trump card for price pressure, but no more. With a high degree of probability, the pair will continue to trade in the price range of 1.1170-1.1240, reacting reflexively to current macroeconomic data. The fundamental background for the pair will in any case be contradictory: the dollar is under the pressure of slowing US inflation and vague prospects from the Fed, while the euro is under the same pressure - but due to the ECB's soft position and the obstinacy of Italian politicians. We should also not forget about Brexit, whose prospects remain under a big question. In other words, in the near future, Trump could either aggravate the position of EUR/USD or maintain the flat movement within the above range.
The material has been provided by InstaForex Company - www.instaforex.com