Trade War Jitters Return. Trump’s New Threats
Dollar Weakened by Uncertainty, EUR/USD Returns Above Support
Just when things started to look a bit better in the trade war, President Trump ramped up the level of uncertainty by threatening higher levies. Last week he mentioned tariffs of 50% on European Union imports and weighed on the possibility of 25% duties on all Apple iPhones made outside the United States.
On his Social Truth network, Trump posted: “The European Union, which was formed for the primary purpose of taking advantage of the United States on TRADE, has been very difficult to deal with.”
This new shift towards a stiffer stance is somewhat unexpected as it seemed the markets were expecting and embracing smooth tariff negotiations and a de-escalation of the entire trade war. On the other hand, this may be just a negotiation tactic from President Trump, a way of scaring the market (and his counterparts) once more before reaching a favorable conclusion.
Economic Calendar Highlights
We are coming off a week that was very light in terms of economic releases but this is about to change as we have some interesting indicators ahead. Monday U.S. banks will be closed in observance of Memorial Day and the first notable release is scheduled for Tuesday at 2:00 pm GMT in the form of the CB Consumer Confidence survey. It has a medium impact but it is a leading indicator of consumer spending, which accounts for the majority of the entire economic activity.
The FOMC Meeting Minutes will be released Wednesday at 6:00 pm GMT, showing the details of the latest Fed rate meeting and the reasons that determined the votes on where to set the rate. More importantly, the document often reveals what data the Fed is most interested in and what may trigger the next rate cut.
Thursday’s main event will be the release of the U.S. Prelim GDP, scheduled at 12:30 pm GMT but probably the most important release will come a day later in the form of the U.S. Core PCE Price Index. This is widely considered the Fed’s preferred inflation gauge and can have a strong effect on the market. The release is scheduled for Friday at 12:30 pm GMT. The German Prelim CPI will be released half an hour earlier, at 12:00 pm GMT.
Technical Outlook – EUR/USD
The pair finished a bullish week after what appeared to be a clean break of 1.1200 support. The dollar took the euro as low as 1.1065 on May 12 but renewed tariff jitters and recession fears weakened the greenback and moved the pair back up.
Currently trading at 1.1410, EUR/USD is headed towards the upper Bollinger Band and may make another attempt to break 1.1500 resistance. The RSI is far from overbought and is bullish, favoring a continuation of last week’s price action. However, keep in mind that the trade war is still in the spotlight and any news on that front will affect the US Dollar.
