Risk-off is back and today’s NFPs are not likely to make any difference for now. The Fed is torn between taking additional easing steps or maintain a data-dependent approach as Fed Chairman Powell didn’t seem so convincing during the press conference on Wednesday as to whether market participants could expect additional cuts to maintain healthy economic growth and support inflation. The recent tweets posted by US President Donald Trump announcing a 10% tariffs on all $300 billion remaining Chinese imported goods (25% tariffs already applied on $250 billion) for 1 September 2019 is certainly not going to persuade Chinese negotiators to ramp up negotiations. Following the recent headlines, investors will most likely take careful attention to July NFPs and US President Trump statement on the trade situation with the EU at 19:45 GMT+2.
In its statement, Fed Powell confirmed that the rate decision was mainly a “mid-cycle adjustment to policy”, hinting that a series of rate reduction is not part of the Fed plan. Yet by mentioning downside risks related to dragging US – China trade war, the Fed implicitly incentivizes US President Donald Trump to leverage on current gloomy trade relationships, a dangerous game that could put pressures on private consumption, a core driver of US growth. Consequently, financial markets are red across the board and set to close the week in negative territory while long- and short-end Treasury yields are lowest since respectively October/November 2016 and finally November 2017 for 2-year yields, dented by rising uncertainties and Fed forward guidance. Although the prospects of a more dovish Fed would make it more difficult for the ECB, which would ultimately support EUR/USD, the increase in trade sanctions against the EU’s automotive and/or aerospace industry, in a single market where manufacturing industry is declining, would turn out to have an adverse effect on the pair.
Currently trading at 1.1099, EUR/USD is bouncing from 1.1076 low (31/07/2019), heading along 1.1140 short-term as July US employment data are expected to disappoint.
