Growing risks of renewed trade war tensions and the turmoil in emerging markets prevent EUR/USD bulls from an attack
Once, Donald Trump said that he loved Janet Yellen, but he appointed another person to chair the Fed. Now, the U.S. president claims to respect Jerome Powell, but he criticizes the central bank’s chairman form time to time. Trump said that the Fed should be helping in trade negotiations. “We are not being accommodated. I don’t like that,” he said. “That being said,” he continued, “I'm not sure the currency should be controlled by a politician.” The U.S. president obviously suggests that the Fed should keep the dollar rate low, like the ECB or the People’s Bank of China. Trump has repeatedly claimed that China and the EU treat the U.S. unfairly on trade. “I think China’s manipulating their currency, absolutely. And I think the euro is being manipulated also,” Trump said.
I have emphasized many times that Trump is a businessman and he treats the U.S. economy like his own business. That is why he is so eager to cut the U.S. foreign trade deficit, claiming that the US is paying hundreds of millions of dollars every year. That is why he negotiates in the carrot and stick way. At the same time, the USA understands that there are no authorities at the international level. The U.S. presidents threatens to withdraw the U.S. from the WTO if they don’t agree with the US
At least six representatives of the U.S. administration, in the interviews with Bloomberg, claim that the American president Trump is willing to boost the tariffs on Chinese imports by $200 billion. He says that the U.S. administration is revising its approaches to currency manipulations. The US hasn’t officially accused another country of currency manipulation since 1994; few doubt that China is the leading candidate to be accused in 2018-2019.
The risk of a soon trade wars escalation increase the panic in the emerging markets, thus supporting the EURUSD bears. The dollar part in the $30-billion international credit is up to 48%, from 40%. The money must be paid back, which increases the demand for the U.S. dollar, sending the EM currencies down. The Russian ruble, the Turkish lira, the Argentine peso...what’s next?
Dynamics of emerging markets’ currencies
Source: Wall Street Journal
The euro is supported by the hawkish rhetoric of governor the Austria’s central bank Ewald Nowotny, saying that Italian problems should be solved by the real economy, rather than by the ECB policy. According to him, the ECB should increase the interest rate earlier than it is planned, as there are nor risks deflation now. This opinion is shared by Commerzbank that suggests that the Governing Council should move away from the negative interest rate before September, 2019 and expects EURUSD to be at 1.26 in late 2019. ABN Amro emphasizes the European economy’s recovery, claiming that the EURUSD may hit 1.15, but that will be the lowest.
I, personally, scared by Donald Trump claim that “The European Union is possibly as bad as China”. The U.S. president rejects the idea of total elimination the car import tariffs between the U.S. and the EU, though he hardly understands that the US-EU trade war will press down the euro. This fact proves my forecast for the EURUSD middle-term consolidation in the range of 1.15-1.185.
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