EUR/USD has edged lower in the Tuesday session, after posting modest gains on Monday. Currently, the pair is trading at 1.1675, down 0.24% on the day. It’s a quiet day on the release front, with no eurozone events. In the U.S, the key event is CB Consumer Confidence, which is expected to drop to 127.6 points. On Wednesday, the U.S releases durable goods reports.
The euro continues to have a quiet week, but trade tensions continue to simmer between the U.S and its trading partners. Although the headlines have been dominated by the trade between the U.S and China, the European Union has also been drawn into the frey. On Friday, the EU slapped 25% tariffs on $3.3 billion of U.S goods. This move was in response to U.S tariffs on EU steel and aluminum imports. However, President Trump has more cards up his sleeves and has threatened to impose 20% tariffs on EU vehicles. Such a move could take a toll on German auto giants Daimler and BMW and could sour investors on the euro. The EU has enough on its plate without a trade war with the U.S, and has launched a complaint over the U.S tariffs with the World Trade Organization. Still, the EU has not shied away from retaliatory moves, with EU Commission President Jean-Claude Juncker saying that the EU’s response would be “clear but measured”. The U.S Treasury Department is expected to announce restrictions on Chinese investment in the U.S, as part of the government’s efforts to curtail alleged intellectual property theft by the Chinese. This would mark a significant escalation of the trade battle with China, and a strong Chinese response could shake up the currency markets.
There is widespread concern that recent protectionist moves could hamper global growth and financial stability. This was the message on Sunday from the Bank of International Settlements (BIS), which acts as an umbrella group for some 60 central banks. The BIS also warned that the esclating trade war could have negative side effects on the currency markets. At the same time, the BIS expressed support for the Federal Reserve raising interest rates gradually and for the ECB heading towards normalization as it winds up its massive asset program.
