Forex is focused on G-7 summit, where Donald Trump is going to strike another blow at the mess in global trade system

Divide and rule. Donald Trump is trying to apply this tactics not only to negotiations on NAFTA with Canada and Mexico, but also to the relationships with other US strategic partners. Instead of somehow comforting the US former allies from G-7, discontented with its protectionism, the US administration announces ahead the summit in Canada about the agreement with Chinese ZTE. Provided the fine of $1.4 bn for violating sanctions against Iran and North Korea, the telecommunications giant will be able to purchase components in the USA. If the US president makes breaks for China, then why doesn't he cancel the tariffs on steel and aluminum for his partners from G-7?

During the war, each side has its own interests. Attackers explain their aggression with the wrong world order, defenders blame the opponents for illegal activities. Donald Trump isn’t going to make any concessions, claiming that the multi-year disorder in global trade system should be managed. The EU and other countries are discontented with the anti-globalism and fight back. The conflict of interests will result in hard discussions at the G-7 summit in Canada on June 8-9. It gets investors to look for a shelter in safe-heaven assets. The US 10-year yield is falling down, driving the US dollar to the bottom.

Dynamics of US bond yield and USD index

Source: Trading Economics

 

The contract with ZTE doesn’t mean that the relationships between Washington and Beijing should improve. On the contrary, as China’s surplus in foreign trade with the USA expanded by 11.6% YoY in May (the best dynamics since February), Donald Trump should grow more discontented. The indicator has reached $24.6 bn, that is almost equal to China’s total trade surplus ($24.9 bn).

Dynamics and structure of China’s trade surplus

Source: Bloomberg

EUR/USD bulls are slightly discouraged by Germany’s weak statistics. The production orders have been reducing for the fourth month in a row in April, which suggests that Germany’s economy is still performing not very well. Therefore, it is too early to expect the Eurozone GDP to restore in the second quarter. The ideas that ECB will announce QE end at its meeting On June 14, can well remain only ideas.

The US dollar is supported by Wall Street Journal survey results. 56 experts’ median forecast suggests the US inflation should be at 2.2% in 2018 (previous estimate was at 2.1%), and at 2.1% in 2019 and in 2020. The Fed will hike its rate four times this year, the experts were unanimous about June, and 84% of them voted for September as well. The derivative market estimates the chances of monetary restriction in these months at 91% and 65% respectively.

EUR/USD has closed 6 out of 7 trading days in the green zone, bulls apparently need a rest; therefore, the pair may roll back towards 1.174-1.745, where euro buyers have built the first defensive line.


 


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Price chart of EURUSD in real time mode

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