Easing of the U.S. - China trade war can encourage EUR/USD bulls

The G20 summit in Buenos Aires proved the markets with an unexpected truce. The U.S. agreed to withhold extending the import tariffs from 10% to 25% for least 90 days. China is willing to reduce the import tariffs on the US vehicles from 40% to 15%, and to significantly increase its purchases of US agricultural, energy and industrial products. The G20 members managed to agree on the memorandum, which alone is already a progress, as earlier, there were a number of precedents when the disgruntled were leaving the hall or used to have a scrap. It was the first time the Apec leaders didn’t agree on a declaration in 29 years.

The G-20 summit in Argentina dominated by the U.S. China’s bans. Washington manged to remove the words about resisting protectionism from the memorandum and to propose the necessity of WTO amendments. Beijing managed to eliminate the words about “unfair trade practice”. Finally, the document was signed unanimously, and Donald Trump was speaking about an “incredible deal”. So, it seems to be a reason for the positive outlook of global economy. Shanghai Composite and the yuan are going up, the USD is heading down. When global risk appetite is improving, the greenback, due to its safe-heaven status, usually loses the shine. Nevertheless, there is an opinion among some investors that the eased U.S.-China trade tensions will encourage the Fed to hike the rate 2019.

In fact, as Jerome Powell had suggested the interest rate to close to a neutral level, the stock indexes started growing and 10-year Treasury yield was down below the psychologically important level of 3% for some time. Even since it is going to rise a little on the expectations of the fed’s rate increase in December, the value won’t be moving that sharply in 2019, according to Financial Times experts’ forecasts. If it is so, the dollar is going to be left behind by the rivaling currencies.

Dynamics of 10-year Treasury Yield

Source: Financial Times

Besides, it must be born in mind that the trade war hasn’t yet finished. It is about a truce. And the truce is rather tentative. Chinese officials have to make concessions, as, according to Financial Times research, if Donald Trump boosted the tariffs on all China’s imports, the Asian economy would lose 1-1.5 pp already in 2019. And the U.S. is not going to reduce the duties (the import tariff on Chinese cars is 27.5%).

Both sides still face rather numerous challenges, but the only fact that the U.S. and China are somehow progressing towards an agreement is seen positively by traders. This positive is likely to remain for the next few months. This fact, along with potentially slower monetary policy normalizing by the Fed, hopes for positives outcomes of the Brexit vote in the UK parliamentary, and Italy's willingness to reach a compromise with the EU encourage the EURUSD bulls. First they need to return the pair quotes above figure 14 base and get ready to storm the resistances at 1.1445 and 1.147. 


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Price chart of EURUSD in real time mode

Dollar Declares Truce

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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