A new wave of trade wars will allow the dollar to go up
EUR/USD drops again. After a short pause last week, when levels of external risks, it would seem to have stabilized, and investors are no longer nervous because of the probability of complications in trade relations between the major powers, to the forefront of the exchange’s attention returned relations between the U.S. and China. Against this background, increasing demand for assets in “safe haven”, in this case the dollar.
Earlier it became known that the President of the United States Donald trump initiated the introduction of new import duties on goods of Chinese origin. Beijing responded symmetrically, stating that he would not “stand aside” and take similar measures of influence by increasing their duties on meat and soy. All of this investors have played last week and the market seems to have calmed down.
Now the States are going further and are preparing to strengthen their serious confrontation with China. Today, the WSJ writes that the restrictive measures of US can relate to, Chinese investment in the us territory. What can it mean? The first is that trump will not turn back, and “trade wars” are likely to expand. Periodically some of the countries can be drawn into the story against their will. Second, restrictions on investment is a completely different plane of tightening, which can then deform the whole structure of financial relations between States.
Initially we can talk about limiting Chinese investments in the sphere of high technologies and participation in the equity of companies associated with the sector. This will limit the export of technology to China, for example. Beijing might react very strongly, because such actions affect its strategic interests and its long-term programme to achieve world leadership in technology.
While these initiatives are not announced out loud, but it is expected that the US will announce it before the end of the week. Then foreign exchange market can be captured by high volatility – the market will be “nervous” when he finds out about the details, and it would require additional reserves in “safe assets”. This could strengthen the dollar.
Current technical picture for EURUSD in some moments can seem confusing or ambiguous. If we analyze the chart from the point of view of technical analysis, the first thing worth mentioning is that the current trend maintains a downward attitude. The only thing that can cause some concerns about its further development to that last test, minimum resulted in a rebound instead of a breakdown and a further decline to the support level 1.1150 levels. Local attempt quotes to rise to the resistance line to test it and to overcome to be successful. The breakdown of current resistance level 1,1745 may allow us to develop corrective up-trend in the upper channel projection at 1,2110.