This is a time where the macroeconomics of the U.S are influencing this pair in conjunction with the seen on the chart. However, the macroeconomics are having an 80% influence over the price movement at this time, while 20% of the movement is still attributed to the technical.
The EUR/USD has reacted inversely to the movement of the S&P500 over the last 4 days as President Trump warns more trade tariffs on Chinese goods and a potential trade war between the two Powerhouses. (Compare EURUSD to SP500 )
This threat has had negative outcomes for the S&P500 , Dow, Nasdaq and virtually all major U.S stock indexes. This movement has trickled over into the currency markets, showing a devaluation of the U.S dollar causing the EUR/USD pair to rise to break through its weekly resistance on high pushing it to intraday new highs of 1.1250.
Since the initial push, the price seems to have consolidated in a textbook , slowly sinking below the weekly resistance. While the price is consolidating, this is the perfect time for a trader to speculate on the direction of the next big move over the next week or coming months.
Macroeconomic & Political factors at play
There are a lot of macroeconomic factors at play with this currency pair over the next month and coming months which will make deciphering movements difficult but that is why trading isn't for everyone. This will be hard. And most likely won't be fun or a get rich quick scheme.
Here are the major events that are looming over the price movement of this currency pair this week/month.
1. Potential Trade War with US&China -
President Trump finds himself in a peculiar spot, boxed in between his 2016 campaign promises to be tough on China, and his self proclaimed measurement of presidential success being the S&P500 . President Trump sees that if he continues to be tough on China, the S&P500 will react negatively which it has done for the last 3 times he has beefed up tough talks against China. Investors believe that if Trump pushes forward with more tariffs on Chinese goods this will spark retaliation from China which will hurt U.S businesses that rely on a good working relationship with China, and competitive pricing. When the tariffs were first introduced the S&P500 reacted negatively to it and U.S businesses felt the brute of the iron curtain of tariffs. Early in January, President Trump promised trade negotiations with China, and since then there was only good news of favorable outcomes from the negotiations. However, over the weekend President Trump tweeted that negotiations were not going as well as planned which caused the S&P500 to plummeted. If these negotiations aren't going as planned president Trump may decide to be tougher on China with increased tariffs which will spark a retaliatory trade war as China has already begun doing.
2. Brexit Looms - Let's not forget that Brexit still isn't done, and it is basically making the UK more and more confusing to be an investor. Brexit, which was supposed to happen in March 2019, has been delayed by Theresa May to ensure she can create a road map forward for the country. Brexit is now scheduled to happen in October to give the government more time to prepare the country. However, the uncertainty of what will happen next is hurting British businesses. A weak housing market, slumping autos production, declining investment and downbeat executives all suggest that continued confusion over Brexit has caused the UK economy to stagnate. As more news about Brexit is released throughout the month it will inevitably affect this currency pair.
Original deadline: March 29, 2019
First delay: April 12, 2019
New extension: October 31, 2019
3. US Election Cycle - There is no doubt U.S Election cycles affect the stock markets and the currency markets. Most of the presidential candidates have already launched their campaigns and as respectable contenders slam the sitting president and gain polling numbers, investor begins to think what would what happen if this candidate wins. For example, during the 2016 presidential elections, investors believed Clinton would be the victor and her push to lower drug prices were going to inevitably hurt the pharma industry. Therefore investors began pulling out before the ballots were even cast. This month in the election cycle is something to watch out for not because of what the candidates will say, but because what President Trump may respond to. If Trump begins responding to candidate promises associated to the economy, this may be an insight into what he will campaign on and moreover, what he will do in the coming month with China.
4. US Unemployment Rate - The U.S recorded a record-breaking low unemployment rate last month of 3.6%. This will no doubt be one of President Trump's talking points during his 2020 campaign. This is important because of two things, 1. historically low unemployment proceeds a market crash and correction and 2. maintaining this low unemployment rate will be the main focus for President Trump to ensure his re-election in 2020. In President Trump's mind, he is winning and succeeding with the U.S economy. He is doing what he said he will do during his 2016 campaign. But now his problem is that he is in a lead way too early, he will have to try to maintain low unemployment rates through to his campaign trail so it can stay relevant in the voter's minds.
5. Trump's Stock Market - After being elected President, the stock markets rallied for the business-centric president Trump. Investors gained confidence that Trump will do what's best for the Economy, and for the most part he has done just that. Until of course, you start to look more recently. With a tweet, he sent over the weekend the stock markets each lost 1 to 2% of their value. This is not what President Trump wants, especially if he ends up reversing all the gains the market has had over his presidency.
President Trump does not want to have a weak stock market going into the Presidential Election Cycle, but he also doesn't want to be weak on China. The Vice Premier of China is flying into the U.S to complete trade negotiations with the U.S and we should expect a result within the next week.
With Brexit not scheduled to happen until October, I think that is far enough outside of the realm of affecting this currency pair this month. In my opinion, I believe President Trump will increase tariffs, even if for a while on China to show China that there are consequences to crossing this administration. But I believe those tariffs will be lessened in time before the presidential elections to give the markets time to recover and be in a growing state by the time he is on the campaign trail. I think his game plan will be to have the markets growing strong while on the campaign trail so that he can get re-elected and be tougher on China at a later date.
If these events play out the way I believe they will, May will see an increase in tariffs causing a 1-4% decrease in market indices over the May-July period resulting in an increase in the currency pair EUR/USD .
Companies affected by the tariff increase will report lower through the August-October period. Causing an additional decline in the major US market indices. Further increasing the currency pair.
Lower will result in some companies closing their doors or laying off workers. If this is done at a favorable rate this could actually curb the market crash theories and reverse the historical pattern. Or it can be a catalyst to the market crashing in November-January.
Lower reported during the Aug-October months coupled with Brexit in October can result in a major shake-up of the EUR/USD pair. However, if the two forces are of equal size they may cancel each other out and we may so no real change to the EUR/USD pair in October-November.
These are thoughts that may affect the currency pair in the way presented, investing is a risk and this should not serve as a recommendation to invest but rather educational material.
Tariffs are raised from 10% to 25% on $200bn worth of Chinese goods. Will this influence talks or just leave Beijing with little choice but to respond?
article from FXEmpire
EUR/USD is trading around 1.1260, the highest since May 1st as China is said to hit the US with new tariffs, a halt in purchases of agricultural products and even bonds. The USD is falling sharply.