At the end of last week, the European press was full of headlines that German Chancellor Angela Merkel surrendered in the trade war with the United States, allowing a reduction in tariffs on American cars. Political experts argue about how much this step will affect its rating, given the recent scandals and ambiguous attitude of the Germans to the government's policy.
However, in the aspect of the currency market, experts almost agree that the German leader prevented the escalation of the large-scale trade conflict between Brussels and Washington. An example of the US-China trade war says that the White House is ready to play "to increase", when each symmetrical reaction follows the next move. And if the conflict with China is almost irreversible, given the actions and rhetoric of the parties, Europe still has the opportunity (and the main desire) to prevent escalation.
It is important to note that in the first half of the year, Europe and the US exchanged the first "blows" of an economic nature. Thus, at the end of March, Washington introduced duties on imported steel and aluminum from the European Union and other countries of the world by 25% and 10% respectively (for EU countries, the preferential treatment was effective until June 1), and on June 22 the EU introduced duties of 25% on goods of American exports by 2.8 billion euros. And although after that, officials continued to express tough rhetoric, the real actions of Brussels (and even Washington, too) indicate that the parties are in search of a compromise solution. Last week, Dutch Prime Minister Mark Rutte visited the White House, where he agreed to continue the dialogue in the sphere of tariff policy.
It is worth noting that in the joint press conference of the leaders of the countries, there was a curious incident when Mark Rutte interrupted Donald Trump in words that if the parties do not agree, then the new American fees will still "have their positive". The Dutchman interrupted the speech of the American president with a short "no", adding that the negotiating groups need to find a solution, since there will be no positive from the new fees. This suggests that Europe seriously intends to find a common denominator with the White House and certainly is not interested in excessive adherence to this issue.
By the way, the voyage of the head of the Netherlands government was in its way "intelligent" on the eve of the main event - the visit of the head of the European Commission Jean-Claude Juncker to Washington. According to some analysts, this visit will be a turning point in the trade relations between the Alliance and the United States. Back in late June, Juncker doubted that he would meet with Donald Trump: the fact is that the US Department of Commerce is now conducting an investigation into the possibility of introducing new duties on cars and auto parts. According to the results of the investigation, the department will issue a verdict whether the import of European cars worsens the state of the US economy or not. Next week (July 19-20) hearings will be held on this issue (it is likely that with the participation of EU representatives), and at the end of July, the ministry will announce the results of the investigation.
In view of the above facts, the "conciliatory" statement by Angela Merkel is a very important component for the normalization of trade relations with the US - as much as possible with the incumbent American president. According to some experts, the Ministry of Trade will have fewer arguments for making a negative for the EU (especially Germany) verdict. In this case, Juncker's visit to the White House will take place in the context of mutual concessions, increasing the likelihood of concluding a commercial "armistice" in one form or another.
It is difficult to overestimate the importance of such a scenario for the European currency. The head of the ECB recently particularly actively pointed to the risks of a possible escalation of the trade war between the EU and the States. According to a number of sources, at the last summit of the EU countries he outlined the "apocalyptic" consequences of the conflict: from a decrease in investment attractiveness and ending with a significant slowdown in production.
Therefore, if Brussels and Washington still find a common denominator during the July meetings, the euro will receive significant support throughout the market. In this case, traders will focus on macroeconomic indicators and on the prospects for tightening monetary policy of the ECB. Here, the European currency will also find support: inflation shows a positive trend, and market rumors suggest that the regulator can raise the rate in September next year. Moreover, expensive oil creates the prerequisites for further growth of European inflation, thus supporting the optimism of bulls EUR/USD.
The American currency, in its turn, is still under the influence of negative Non Farms. Growth in unemployment and weak wage growth rates are bad news for dollar bulls. The third rate increase this year is partly taken into account in prices, but the fourth increase is again under big question, considering the protocol of the June Fed meeting. The rhetoric of the members of the Federal Reserve was controversial, especially about the prospects for inflationary growth. Here it is worth noting that this Thursday, US consumer price index will be published - if the indicator does not show "character", then the dollar will remain under the pressure of the fundamental background. The preliminary forecast is not impressive: according to experts, the CPI will remain at the level of the previous month, recording a weak increase (+ 0.2% in monthly terms).
From the technical point of view, the pair came close to the first, the strongest resistance level - 1.1790 (the upper line of the Bollinger Bands indicator on D1). If the bulls can overcome this level and gain a foothold above it, the path will be opened up to the 20th figure (to be exact - 1.1995), since the next level of resistance is the upper limit of the Kumo cloud on the daily chart.
The material has been provided by InstaForex Company - www.instaforex.com