US-China Trade Tensions Weakens the Greenback

US-China Trade Tensions Weakens the Greenback
May 10, 2019

 

The euro soared yesterday to new weekly highs against the greenback in the early US session mainly due to the heightened trade tensions between the US and China, disappointing trade balance, and initial jobless claims data.  Later, the EUR/USD currency pair gave back a portion of its gains, but remained slightly bullish as top-level US-China trade negotiations resumed. The EUR/USD currency pair today rallied from a low of 1.1172 in the early European session to a high of 1.1250 in the US session before losing some of its gains.

The EUR/USD currency pair was trading sideways earlier yesterday, marking the fourth successive day of range-bound action. Due to President Donald Trump saying that China had breached the trade negotiations, the currency pair’s profits were restricted by the unfolding trade war concerns.

After months of apparently congenial discussions, Chinese trade representative Liu He returns to the negotiating table in a strained environment after the US negotiators accused Beijing of failing to deliver on earlier accepted obligations. The United States is trying to put pressure on China by announcing plans to hike import duties from 10% to 25% on Chinese products worth US$200 billion, forcing Beijing to declare “necessary countermeasures.”

The Chinese state repeated it would do its best to uphold its legitimate rights and commitments as a nation. China dismissed US allegations of backpedaling trade negotiations and cautioned it would not “capitulate to any pressure” as the two parties continued with the make-or-break discussions yesterday.

In Beijing, Gao Feng, Chinese commerce ministry spokesman said: “The US has assigned a lot of labels, such as backtracking, going back on one’s word, and so on. Lots of promises have been foisted on China. China will not capitulate to any pressure, and we have the determination and ability to defend our own interests.”

Washington has sought far-reaching alterations to the Chinese industry, such as subjecting state-owned businesses to market standards, reducing huge incentives, and preventing suspected US technology piracy. Analysts believe China will be hesitant to accept several of these modifications, which could weaken the political control of the Communist Party. Scott Kennedy, a Chinese trade and economics consultant at the Center for Strategic and International Studies, felt that each side seems to believe that it is better placed than the other party to tackle the issue.

President Trump also divulged that he has received a “beautiful letter” from Chinese President Xi Jinping and that they would likely talk pretty soon. According to U.S. authorities, there are no fixed schedules for Trump to meet Liu He who has arrived in Washington to take part in the high-level discussions. During his previous trips to Washington, Trump hosted Vice-Premier Liu as the two parties seemed to reach an understanding. With both parties toughening their bargaining position this week, the White House chose not to include Trump this occasion.

The showdown between the world’s top two economies has forced investors to run for cover. The currency pair gained ground as the greenback lost steam as measured by today’s US Dollar Index, which fell to a low of 97.24.

On the data front, the Labor Department said that initial jobless claims fell by 2,000 to a seasonally adjusted 228,000 for the week ended May 4th. Data for the previous week was unchanged. Economists polled by Reuters had predicted jobless claims for state unemployment benefits to decline to 220,000 in the recent week.  Notably, the government reported that the economy created 263,000 jobs in April, bringing the unemployment rate down to a near 49-1/2-year low of 3.6%.

In other news, according to the Bureau of Economic Analysis, the goods and services deficit was increased to $50.0 billion in March, compared with $49.3 billion in February. March exports increased $212.0 billion – an increase of $2.1 billion from the earlier month.  Similarly, March imports were $262.0 billion, up with $2.8 billion from February imports.

The unresolved trade tensions and weak economic data is expected to keep the US dollar weak against the euro and other major currencies for the rest of the last trading day of the week.

The historical price chart indicates that the EUR/USD pair is moving within the ascending channel as shown in the image below. Additionally, the money flow indicator is also having a reading of over 50. As a result, we can expect the currency pair to move up in the short-term.

EUR - technical analysis - 10th May 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

 

Sammy

Sammy

Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world


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