Has the Trade War Peaked? What Surprises Lie Ahead?
EUR/USD Trades Below Resistance, Correction Still Underway.
Despite the tariff debacle and the perceived fear of recession, the U.S. economy is doing better than expected, or at least that’s what the numbers are saying. Last week we saw the U.S. Retail Sales increase by 0.1%, higher than the forecast 0.0% but we also saw a sharp revision for the March numbers from 1.4% to 1.7%. Inflation also cooled in April and the year-over-year number fell to the lowest in more than 4 years, at 2.3%.
The higher tariffs will probably have a lingering effect that will become more visible in the next period. On the other hand, it looks like President Trump is willing to reach common ground with many nations, including China. A total de-escalation of the trade war will have positive effects on the markets, both legacy and crypto.
This week will be very light in terms of economic releases, which means that the tariff negotiations will take center stage. President Trump is set to meet with Presidents Putin and Zelenskyy in an attempt to put an end to the Russia – Ukraine war. A successful de-escalation would surely send ripples of optimism across the market.
Economic Calendar Highlights
The only interesting day as far as economic releases go will be Thursday when a cluster of PMIs will come out. The French Manufacturing and Services PMIs will be the first on the schedule, at 7:15 am GMT, followed by the same indicators for the German economy at 7:30 am GMT.
The UK Manufacturing and Services PMIs will be released at 8:30 am GMT and the last ones to come out will be the U.S. PMIs, scheduled for 1:45 pm GMT. The Purchasing Managers’ Index (PMI) is not a market-mover but it can have an effect on the respective currency if the actual number is substantially different from the forecast.
Technical Outlook – EUR/USD
The US Dollar ended last week below the support at 1.1200 but earlier in the week, it reached as low as 1.1060. Currently, the pair is trading at 1.1185 and is completing a correction after reaching the top at 1.1570.
The trade war seems to have peaked but that does not mean that it’s all smooth sailing from here on. New developments regarding the tariff negotiations will have a strong effect on the greenback and markets in general.
For the time being, we have a short-term bearish bias, with the dollar in relative control, at least as long as the pair is trading below the resistance at 1.1200. A daily close above this level will probably bring in more buyers.
