Trump Reignites Trade War Jitters. Tariff Revenue Increases
The Dollar Tries to Make a Comeback. Long-Term Trend Line Tested.
The greenback strengthened against most of its major peers last week, but overall, volatility was low, although tariff jitters started to creep back in. The latest countries hit with higher tariffs are Canada, Mexico, and the EU. On Saturday, President Trump announced 30% tariffs on goods coming from the European Union and Mexico, while Canadian goods will be charged 35%.
The new deadline is August 1, but despite higher tariffs on some countries, the market reaction is muted when compared to the storm triggered by “Liberation Day”. This could be because some market participants expect the tariffs to change or the deadline to be extended again.
But while all this is happening, a thing is certain: tariff revenue keeps piling in. According to the Treasury Department, June was a record month, with $26.6 billion worth of customs duties. This comes after May’s $22.2 billion.
Higher tariffs may weigh on inflation, potentially delaying an interest rate cut. That’s why Tuesday’s CPI release will be the main thing to watch this week.
Economic Calendar Highlights
The U.S. Consumer Price Index (CPI) will be released on Tuesday at 12:30 pm GMT, showing the change in the price paid by consumers for the goods and services they purchase. It is the main gauge of inflation and plays a major role in the Fed’s rate decision. Both the headline and Core versions are expected to show a 0.3% change from the previous month’s 0.1%. The yearly figure is expected to grow to 2.6% from 2.4%.
Wednesday at 12:30 pm GMT, we will take a look at the Producer Price Index, which has inflationary implications because a higher price charged by producers will eventually be passed on to the consumer.
The last notable event of the week will be the release of the U.S. Retail Sales, scheduled for Thursday at 12:30 pm GMT. Sales made at retail levels represent the biggest portion of consumer spending, which in turn accounts for the majority of overall economic activity.
Technical Outlook – EUR/USD
The pair has been trading in an uptrend for the entire year thus far, with the RSI going into overbought territory several times. Just recently, the RSI visited overbought territory again, and the uptrend seems to need a deeper correction.
The bulls have loosened their grip, and the dollar is timidly gaining ground. If the bears manage to break the long-term trend line, then we may see a re-test of the support at 1.1500 and a touch of the lower Bollinger band.
It has to be noted that the red candles are small and with long wicks, which means that there is not a lot of momentum, and there are still buyers in the market. This may stifle the dollar’s recovery, but a break of diagonal support could bring more sellers in.
