With undercurrents of police violence, the foreign exchange market radically altered. Our starting picture, the EUR/USD currency pair, has pulled back from the highs of the multi-year top above 1.1400. By the end of the week, the two had found themselves landing near 1.1360 — a pretty good look given how choppy the last few weeks have been. The market largely reacted to the perfect storm of factors such as strong US economic data and a major communications rollout surrounding the new round of trade tariffs.
On Friday, the EUR/USD currency pair retreated from its recent high. It had just passed levels that haven’t existed in over five years. Still, the euro held firm, recently trading at 1.1360. This resilience is further evidence that traders remain overall bullish on the euro’s long-term strength against the US dollar. The sharp change in the exchange rate is indicative of the market forces at play as shaped by external events – both at home and abroad.
Setting the stage for all of these changes was President Donald Trump’s announcement of a tariff delay, a major boost to market sentiment. Wall Street celebrated the news by skyrocketing. Investors were hopeful that this would mean a de-escalation of hostilities in the still-raging Trade War with China. The retreat in tariffs provided every player across the market some short-term relief. This relief provided a spark to ignite previously subdued bullish trends in all major stock indices.
Even with the widely cheered upside surprise warming equity market hearts, the US dollar couldn’t find its footing. Disappointing results from recent US Producer Prices data added to the bearish pressure. The fact that the Producer Price Index (PPI) showed weaker-than-expected growth increased hopes that inflationary pressures are stabilizing along with the economy. As U.S. economic indicators appear to reflect an ever-increasing slowing momentum, traders are starting to think about winding down their expectations on what this means.
The Trade War with China still looms heavy over all financial matters. Though Trump’s tariff delay provided a momentary sigh of relief, fears over the future of trade talks remain. The resulting uncertainties have led to only modest positive moves in the forex and equity markets. Participants are on the defensive, however, as we all are under today’s geopolitically charged environment.
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