Meanwhile, the EUR/USD currency pair still looks to be trading in more comfortable areas on Monday, with a slight inclination to the downside. So when the market began reacting to worsening US/China trade relations, investors were on edge. Indeed, US President Donald Trump’s large recent imposition of tariffs against China. These measures primarily address allegedly unfair commercial practices and intellectual property theft, but they have poisoned the well of market sentiment. As the American trading session opens up, this EUR/USD exchange rate encounters significant resistance at the very bottom of its most recent range. It creeps ever closer towards breaking below the 1.1600 figure.
The resulting trade fight with China has resulted in China retaliating in kind. They’ve retaliated with tariffs of their own on a wide array of US products, from cars to soybeans. These latest advancements follow a long-expected and short-lived US-China trade deal signed in January of 2020. This bipartisan agreement demanded muscle and accountability in the form of major structural reforms and comprehensive changes to China’s mercantilist economic and trade systems. Yet, the fighting continues even with these recent measures in place.
Market Reactions to Trade Policies
Fortunately, the impact of President Trump’s tariffs has gone beyond words. It has started to make real waves on financial markets. Investors are anxiously awaiting the impact of these policies on long-term economic growth and inflation. The uncertainty in trade relations between the US and the EU is leading to a modest downward pressure on the EUR/USD pair. Investors are busy balancing risks and upside potential.
In between, Trump threatens Federal Reserve Chair Jerome Powell with aggressive fire and fury. He cites her monetary policy decisions for at least $10 billion in losses. This recent criticism makes a complicated economic atmosphere even more so. Everyone is now watching the Federal Reserve for signs of what moves it could make next. They are concentrating on the stresses caused by trade war and relentless Presidential attacks.
Adding to the market’s jitters, the US is due to publish its July Consumer Price Index (CPI) on Tuesday. Analysts widely expect annual inflation to beat the forecasts. They predict an increase to 2.8% for July, an increase from the June 2.7% rate. Moreover, the core annual inflation rate is forecast to edge up to 3.0% from 2.9%, adding to the economic uncertainty.
Technical Indicators and Market Sentiment
As the EUR/USD currency pair continues to juggle these outside pressures, technical indicators are showing a momentum that is barely alive. The pair is now up against a downward-sloping 20 Simple Moving Average (SMA). At the same time, the 100 and 200 SMAs are both consistently upwardly sloping and still positioned quite far below the current price. This divergence indicates possible downward pressure as market sentiment continues to be on the defensive side.
Additionally, the momentum gauge is picking up bearish force, slipping under its midline and shoving away from downward selling pressure. The Relative Strength Index (RSI) has turned sharply south but is still hovering near the neutral mark of 50. This positioning reflects the lack of buying activity in the market at the moment. On the flip side, there is no compelling selling pressure right now.
The EUR/USD cross is close to important support at 1.1600. Speculators are on high alert to the aforementioned markers to signal reversals or additional declines. It is here that the interplay between political factors and technical analysis will play an important role in deciding where the pair goes next.
Future Outlook Amid Economic Uncertainty
Going forward, investor sentiment will be largely determined by the next Consumer Price Index report. An unforeseen jump in inflation would likely lead to increased speculation about future rate hikes by the Federal Reserve. If inflation continues its upward trend, we will be caught flat-footed, facing even more pain for American consumers and American businesses.
The current trade war with China adds another element of uncertainty for the markets. Should tensions escalate further or if new tariffs are introduced, the impact could ripple through various sectors, affecting everything from consumer spending to corporate profits.