Dollar Slides as Tariff War Intensifies. ECB Rate Cut Next?
EUR/USD Trades at 2-Year High as Overbought Levels Come Into Play
The trade war continues and the focus is now almost entirely on the U.S. and China as tariffs keep climbing in a retaliatory fashion. At the time of writing, the import tax for Chinese products is 145%, while American imports are taxed 125% by the Chinese.
This is basically an embargo, as the trade between the world’s two largest economies has come to a halt.
The US Dollar Index (DXY), which measures the US Dollar’s strength against a basket of 6 major currencies, has dropped to a 2-year low, ending last week at 99.78. Against the Euro, the dollar ended last week at 1.1360 after coming close to the resistance at 1.1500.
Going forward, the markets will be heavily influenced by rumors about the tariff negotiations. There will be a lot of speculation and “fake news” which will affect price action and possibly create whipsaws.
Economic Calendar Highlights
Four FOMC members will speak on Monday at different events and locations. Any insights into the Fed’s monetary policy will be useful and may generate strong movement.
The U.S. Retail Sales numbers will come out Wednesday at 12:30 pm GMT, together with the Core version of the indicator, which excludes automobiles from the calculation. The headline figure is expected to increase by 1.4%, while the previous number was 0.2%.
Also Wednesday, Fed Chair Powell will speak about the economic outlook at the Economic Club of Chicago. The speech is scheduled for 5:30 pm GMT and may have an impact on the markets.
Thursday all eyes will be on the Euro as the European Central Bank (ECB) is set to announce the interest rate, which is expected to be cut from 2.65% to 2.40%. The announcement is scheduled at 12:15 pm GMT and will be followed half an hour later by the usual press conference held by ECB President Lagarde.
Technical Outlook – EUR/USD
The euro-dollar pair is trading at levels last seen in February of 2022 and price action is mainly dictated by the fundamental scene. The tariff negotiations will remain the focus of the markets and will drive most US Dollar pairs.
From a strictly technical standpoint, the pair is in need of a retracement after such a massive bull run. The RSI has been overbought three times during the latest climb and Friday’s candle shows a long wick in its upper part, which signals rejection.
The levels to watch are 1.1500 as resistance and 1.1200 as potential support. Once again, keep in mind that any tariff negotiations news or rumors will likely have a massive impact on the market.
